8.9%-Yield CrossAmerica Partners Stock Hit Fresh Record High
January 18, 2024
Why CAPL Stock’s Outlook Is Bullish
After a strong 2023, during which the S&P 500 rose by more than 24%, the stock market has seesawed in the opening days of 2024.
The year is still new, and the analyst consensus for the S&P 500 in 2024 isn’t exactly unanimous. JPMorgan Chase & Co (NYSE:JPM) is saying the index will drop by at least 10%, while UBS Group AG (NYSE:UBS) is calling for the S&P 500 to hit a new record high.
Instead of trying to guess what the broader stock market is going to do this year, it might make more sense to look at a high-yield dividend payer like CrossAmerica Partners LP (NYSE:CAPL). Its shares are trading near record highs, its dividends are reliable, it reports outstanding financial results, and—according to its management—it’s “well positioned for the future.”
The stock market sometimes experiences periods of volatility, but at least with CrossAmerica Partners, its fabulous business performance means its share price will probably rebound from downturns more quickly than those of stocks that are on the tail end of unwarranted investor optimism.
CrossAmerica Partners is a leading U.S. wholesale distributor of motor fuel, operator of convenience stores, and owner and lessor of real estate used for the retail distribution of motor fuel. (Source: “Investor Presentation: May 2023,” CrossAmerica Partners LP, last accessed January 10, 2024.)
With a geographic footprint that spans 34 U.S. states, CrossAmerica Partners distributes branded and unbranded petroleum for motor vehicles to more than 1,700 locations. In 2022, it distributed more than 1.3 billion gallons of fuel.
The company also operates convenience stores under seven brand names at more than 250 locations in 13 states in the eastern U.S. Its sites sell food, beverages, tobacco, and other products. Some of its locations are paired with prominent fast-food brands, such as “Subway” and “Tim Hortons.”
The partnership has well-established relationships with several major oil companies, including BP plc (NYSE:BP), Exxon Mobil Corp (NYSE:XOM), Marathon Petroleum Corp (NYSE:MPC), and Shell PLC (NYSE:SHEL). (Source: “CrossAmerica Partners LP Reports Third Quarter 2023 Results,” CrossAmerica Partners LP, November 7, 2023.)
CrossAmerica Partners is one of Exxon Mobil’s biggest U.S. distributors by fuel volume and is one of the top 10 fuel distributors for other oil companies.
Q3 2023 Was “Another Excellent Quarter” for CrossAmerica Partners LP
For the third quarter ended September 30, 2023, CrossAmerica Partners reported net income of $12.3 million, or $0.31 per share. That was down from $27.0 million, or $0.71 per share, in the same period of 2022. (Source: Ibid.)
The company’s third-quarter 2023 adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were $44.2 million, compared to $62.2 million in the same prior-year period.
The decrease in the company’s net income and adjusted EBITDA was primarily driven by declines in gross profits in its wholesale and retail segments. In the third quarter of 2022, the partnership experienced extraordinary motor fuel margins.
CrossAmerica Partners LP’s distributable cash flow in the third quarter of 2023 was $31.4 million, versus $50.9 million in the third quarter of 2022. The decline in distributable cash flow was primarily fueled by the aforementioned decline in adjusted EBITDA, in addition to a $2.2-million year-over-year increase in interest expense.
Commenting on the results, Charles Nifong, CrossAmerica Partners LP’s president and CEO, said, “CrossAmerica had another excellent quarter with continued strong operating results in fuel margins, fuel volume and store merchandise sales and margin.” (Source: Ibid.)
He continued, “While retail fuel margins were down from the extraordinary quarter last year, the overall business still performed well for the current quarter. With our strong balance sheet and solid distribution coverage, the business is well positioned for the future.”
Management Maintained Quarterly Distribution of $0.525 Per Share
Thanks to its stable cash flow from real estate rent and motor fuel distribution, CrossAmerica Partners is able to provide income investors with reliable, high-yield dividends.
In October 2023, it declared a dividend of $0.525 per share. (Source: “CrossAmerica Partners LP Maintains Quarterly Distribution,” CrossAmerica Partners LP, October 23, 2023.)
That translates to an inflation-crushing yield of 8.9% (as of this writing).
CrossAmerica Partners stock’s distribution is safe: the company’s coverage ratio in the third quarter was 1.57x, and its trailing distribution ratio was 1.43x. Management targets a coverage ratio of 1.2x.
As for CAPL stock’s price, it has done very well since bottoming during the 2020 COVID-19 crisis. It’s once again trading at record-high levels. CrossAmerica Partners units hit a new all-time high of $23.90 on December 3. As of this writing, CAPL units are up by 28% over the last six months, 27.7% year-over-year, and 3.6% since the start of 2024.
Meanwhile, the S&P 500 is up by 8.1% over the last six months and 22.0% year-over-year but down by 0.5% since the start of 2024.
Chart courtesy of StockCharts.com
The Lowdown on CrossAmerica Partners Stock
CrossAmerica Partners LP is a great energy company that provides its shareholders with big long-term stock market gains and reliable, inflation-crushing dividends.
The partnership reported another quarter of fantastic operating results, with a solid balance sheet and distribution coverage that position it well for future growth.
CrossAmerica Partners units are trading at record-high levels, and their high-yield quarterly dividends are safe, with a distribution coverage ratio of 1.57x.
