Everyone would love to find the perfect stock. But will you ever really find a stock that gives you everything you could possibly want?

One thing's for sure: If you don't look, you'll never find truly great investments. So let's first take a look at what you'd want to see from a perfect stock, and then decide if Suburban Propane Partners (NYSE: SPH) fits the bill.

The quest for perfection
When you're looking for great stocks, you have to do your due diligence. It's not enough to rely on a single measure, because a stock that looks great based on one factor may turn out to be horrible in other ways. The best stocks, however, excel in many different areas, which all come together to make up a very attractive picture.

Some of the most basic yet important things to look for in a stock are:

  • Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
  • Margins. Higher sales don't mean anything if a company can't turn them into profits. Strong margins ensure a company is able to turn revenue into profit.
  • Balance sheet. Debt-laden companies have banks and bondholders competing with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Money-making opportunities. Companies need to be able to turn their resources into profitable business opportunities. Return on equity helps measure how well a company is finding those opportunities.
  • Valuation. You can't afford to pay too much for even the best companies. Earnings multiples are simple, but using normalized figures gives you a sense of how valuation fits into a longer-term context.
  • Dividends. Investors are demanding tangible proof of profits, and there's nothing more tangible than getting a check every three months. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let's take a closer look at Suburban Propane.


What We Want to See


Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% (6.8%) fail
  1-Year Revenue Growth > 12% (0.6%) fail
Margins Gross Margin > 35% 21.9% fail
  Net Margin > 15% 10.1% fail
Balance Sheet Debt to Equity < 50% 84.9% fail
  Current Ratio > 1.3 2.46 pass
Opportunities Return on Equity > 15% 29.7% pass
Valuation Normalized P/E < 20 23.60 fail
Dividends Current Yield > 2% 6.3% pass
  5-Year Dividend Growth > 10% 6.6% fail
  Total Score   3 out of 10

Source: Capital IQ, a division of Standard and Poor's. Total score = number of passes.

With a score of just three, Suburban Propane doesn't look much like a perfect stock. But with investors searching more than ever for healthy dividends, a stock with a 6% yield deserves a closer look.

As you'd expect from its name, Suburban delivers propane, fuel oil, and other types of energy products both to residences and to commercial customers. Unless you're a King of the Hill fan, propane isn't a glamorous business, but Suburban has been doing it for more than 80 years.

The industry is fairly competitive, and Suburban hasn't done a good job of producing growth. Both Ferrellgas Partners (NYSE: FGP) and AmeriGas Partners (NYSE: APU) have managed at least modest positive sales growth over the past five years, although they have much greater debt loads than Suburban does.

Where Suburban shines, though, is in profitability. Among FerrellGas, AmeriGas, and Star Gas Partners (NYSE: SGU), Suburban is the only one to post double-digit net margins. It's those profits that have helped Suburban pay a large and growing dividend over the years. And although its stock isn't as cheaply valued as Star Gas, Suburban doesn't have the sky-high multiples that FerrellGas pulls in.

Suburban definitely isn't perfect, but for dividend investors, it's worth considering. In a business that won't go away anytime soon, Suburban is an interesting niche play in the crowded energy sector.

Keep searching
No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate out the best investments from the rest.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.