A byproduct of the oil and natural gas refining processes, propane is used to heat homes, power clothes dryers, water heaters and kitchen stoves.
And as outdoor cooking enthusiasts well know, it is also widely used as fuel for backyard grilling.
The U.S. energy boom resulted in a glut of propane, which has fallen in price right alongside oil.
That’s because, as propane distributors, price doesn’t matter—volume does. Not surprisingly, the warm winter of 2014–2015 took its toll on all three of the companies, according to their latest earnings calls.
AmeriGas reported volume was down 14% from the previous winter, while Ferrellgas suffered a decrease of only 2%, due to its Blue Rhino segment. Suburban management didn’t give a number, but acknowledged that demand was down.
Warm winters may temporarily affect revenues, but doesn’t fundamentally harm the business. Still, propane stock prices have fallen in tandem with oil, increasing yields relative to dividends, which increase steadily for all three companies.
In the current low-interest climate, these yields are something to behold: AmeriGas’s yield is close to 8% right now, and both Ferrellgas and Suburban sport yields well over 10%.
What does the future hold for propane? According to a recent industry outlook, consumer sales will grow by 9% through 2025. Much of this growth will come from alternative fuel vehicles, as well as the housing market.
Since 2013, propane has been a bigger player in new housing construction. Residential conversions to propane from oil continue—albeit at a slower pace since oil prices tanked.
The report also notes that newly-lower propane prices help increase the fuel’s market share, as it’s now more competitive with oil.
Looking for more than propane? There’s plenty…