One of the best income stocks I have come across since starting this site is Inergy L.P. (NRGY: 18.00 0.00 0.00%). This propane retailer and natural gas midstream company has again increased their quarterly payout. This is the 31st consecutive increase in the distribution. The stock currently yields almost 9%.

Inergy seems to be especially well managed to control costs and grow revenues. It has not had a hiccup in the 3 years I have been watching the stock. The retail propane business continues to make their margins in both high and low energy price scenarios. The natural gas midstream operations are also not dependent on energy prices.

It is hard to believe the market knocked this stock down to $12.40 per share when the world was ending last November. I would not mind another energy price scare to pick up this stock at a lower price.

These numbers are based on historic NGL prices in relation to $65 oil. APL has been working to deleverage their balance sheet and it is anticipated that much of the cash flow for the next several quarters will go to pay down debt.

APL stock is up 13% today in a down market (ATN is down 10%). As I wrote months ago, APL will continue to be a good leveraged option on rising oil prices.

I think Inergy LP (NRGY: 18.00 0.00 0.00%) should definitely be on every income investor’s radar. The have increased the distribution every quarter for something like 7 years straight. Their management has cost under control and a well managed growth plan.

The retail propane market seems pretty recession proof (almost too late now!). Growth is possible by making acquisitions in this still fragmented business.

Inergy has also been creative in the growth of their midstream natural gas business. With operations focused on California and New York, they have large markets to grow into.

Although the share price dropped to close to $12 over the last year, the share price is now 2% above where it was in the middle of 2008. Throw in a 10%+ dividend and long term investors should be pretty happy.

From the APL conference call I pulled two major ideas that I believe are positive for the company:

1. The 38¢ dividend declared for the 4th quarter had 1.5 times coverage in distributable cash flow. Prices and margins have improved in the first quarter and management declared that the new dividend was set at a (hopefully) sustainable rate. The stock currently yields 26%.
2. The company is in end-stage negotiations to sell part or all of 3 different assets. The proceeds from these sales will be used to pay down debt and deleverage the company. Completion of these deals could happen in just a few weeks.

APL has been one of the hardest hit of the midstream natural gas companies down over 90% from last summers 52 week high. Atlas Pipeline Partners seems to have survived the 4th quarter energy price collapse and is still able to generate free cash flow. It make take another quarter or two if increasingly better numbers for the market to like this stock again, but at the current share price I think long term investors will be well rewarded.

Note: APL is a component of this site’s Income Portfolio.

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