Monthly dividend stocks are highly appealing to self-directed investors because they make it significantly easier to budget dividend income against living expenses. Unfortunately, there are very few stocks that pay monthly dividends. We’ve compiled a list of all 40 monthly dividend stocks for your use, which you can access below.

Superior Plus is one such company whose management team has decided to distribute profits on a monthly basis. And, the company has an exceptionally high dividend yield. At the time of this writing, Superior Plus yields 5.7% – nearly three times the average dividend yield in the S&P 500.

This makes Superior Plus one of the few securities with yields above 5%. You can see the full list of all high dividend stocks with 5%+ yields here. Superior Plus’ high dividend yield and monthly dividend payments are two reasons why investors might take interest in this stock. This article will analyze Superior Plus’ investment prospects in detail to determine whether the company merits consideration for the portfolios of dividend growth investors.

Business Overview

Superior Plus (SPB) is an energy company headquartered in Toronto, Canada. The company has a market capitalization of C$1.8 billion and operates in two main segments:

• Energy Distribution
• Specialty Chemicals

Details about each of Superior Plus’ operating segments can be seen below.

Source: Superior Plus 2017 Investor Day Presentation, slide 3

Superior Plus’ Energy Distribution segment is involved in the distribution and retail marketing of propane products, liquid fuels (including heating oil and propane gas), and wholesale liquids marketing services. This segment operates primarily in Canada but has been expanding into the United States through a series of acquisitions that began in 2009. Much of the operations of Superior Plus’ Energy Distribution segment is done under the trade names ‘Superior Propane’ or ‘Superior Gas Liquids’.

Superior Plus’ Specialty Chemicals segment is focused on the production and supply of sodium chlorate and chlor-alkali products. The segment does business under the trade name “ERCO Worldwide” and operates eight production facilities in North American and one in Chile. ERCO Worldwide is the second largest producer of sodium chlorate in the world and serves customer segments such as pulp and paper, food, energy, and agriculture.

It should be noted that Superior Plus is an international stock – the company trades on the Toronto Stock Exchange under the ticker SPB and reports financials in Canadian dollars. Accordingly, United States investors who are looking exclusively for domestic equity exposure should exclude this security from their investment universe.

Growth Prospects

Often, investors can get a sense of a company’s future growth potential by examining its historical ability to compound shareholder value. In the case of Superior Plus, this approach is far from reassuring.

On the surface, this energy company has managed to grow its revenue at a reasonable rate over long periods of time. Even when accounting for the inevitable dropoff in revenues thanks to the current low oil price environment, Superior Plus has managed to grow its revenue at nearly 14% per year over the past two decades.

Source: YCharts

However, this has not translated into rising share prices. The company’s share price is currently significantly below its level in the early 2000s. Moreover, Superior Plus’ share price is lower than it was during the 2007-2009 financial crisis – a rarity after one of the longest bull markets on record.

Source: YCharts

So what gives? Usually, a company that can grow its revenue at 14% per year over the long run should reward shareholders handsomely. In Superior Plus’ case, there are two reasons why rising revenues have not translated to rising intrinsic value. The first is because of the company’s weak spending controls.

As the following diagram shows, Superior Plus has been unable to grow its net income at a pace anywhere close to its rate of revenue growth. This implies that the company’s expenses have been rising faster than revenues – a worrisome sign.

Source: YCharts

Superior Plus’ inability to grow net income is partly due to the company’s capital-intensive business model (which generates significant depreciation and amortization charges). Unforunately, the result when using EBITDA instead of net income is quite similar.

Source: YCharts

Superior Plus’ inability to translate rising revenue to rising EBITDA or net income is one reason the company has failed to grow shareholder value over time. The second reason is that the company’s share count has meaningfully increased over time. When a company issues shares, it is effectively performing the opposite of a share repurchase. Each continuing shareholder’s portion of the underlying business becomes less valuable.

In Superior Plus’ case, this has definitely harmed the company’s shareholders. The company’s share count has nearly quadrupled since 1997.

Source: YCharts

With all that said, the old adage of “past performance does not guarantee future results” may apply to Superior Plus. Just because the company has underperformed in the past does not mean it will continue to underperform in the future (although that is a trend that we’re very hesitant to bet against).

Looking ahead, Superior Plus’ growth is expected to come from its acquisition of Canwest Propane, which the company purchased from Gibson Energy in a $412 million deal that was announced in February of this year. The transaction gives Superior Plus an additional 37 branch locaitons, 30 satellite locations, and a customer base of approximately 50,000.

Additional details about the merits of the Canwest Propane acquisition can be seen below.

Source: Superior Plus 2017 Investor Day Presentation, slide 6

One of the major proposed benefits of the Canwest acquisition is the potential for Superior Plus to realize meaningful cost synergies. Once the acquisition is integrated in full, the company expects to realize $20 million of run rate savings each year.

Source: Superior Plus 2017 Investor Day Presentation, slide 7

While the Canwest acquisition looks promising on paper, we are hesitant to believe that Superior Plus’ future growth will satisfactory given its track record and recent dividend cut (discussed in the next section).

Competitive Advantage & Recession Performance

As an operator in the energy distribution industry, Superior Plus has the potential to be highly recession resistant as the industry as a whole benefits from regulatory barriers to entry and significant upfront capital outlays to begin business.

Unfortunately, Superior Plus has not shown the ability to endure through all economic environments. The company executed a drastic dividend cut in 2011, which can be seen in the following diagram.

Superior Plus has responded by noticeably reducing its leverage. In fiscal 2012 (the first full year after the dividend cut), the company reported a leverage ratio (total debt to adjusted EBITDA) of 4.6x. This number has been more than cut in half by the end of fiscal 2016, being reported as 2.1x.

Source: Superior Plus Investor Relations

Superior Plus also made changes in its C-suite following the dividend cut. The company’s current Chief Executive Officer, Luc Desjardins, joined the company in 2011 from a background in private equity with Sterling Group LLC. While these changes are welcome, Superior Plus remains far from a defensive position and investors should monitor the risks associated with this stock accordingly.

Valuation & Expected Total Returns

Superior Plus’ future total returns will come from valuation changes, dividend payments, and growth in the company’s adjusted earnings-per-share.

Related: How to Calculate The Expected Total Return of Any Stock

From a valuation perspective, Superior Plus is slightly tricky to analyze because of the cash-intensive nature of its business model. The company’s high dividend yield and significant depreciation and amortization expenses are reminiscent of a master limited partnership. Accordingly, we’ll take the same approach to analyzing Superior Plus’ valuation as we for MLPs: by comparing the security’s current dividend yield to its long-term historical average, which is done in the image below.

Source: YCharts

Superior Plus has a current dividend yield of 5.7%, which is essentially in-line with its 5-year average of 5.6% but significantly below its 10-year average of 9.7%.

As shown previously, Superior Plus executed a significant dividend cut in 2011 and that’s why the company’s current yield is so much lower than its 10-year average. Using the more relevant 5-year average, Superior Plus looks to be trading around its ‘new’ fair value (post-dividend-cut).

Although the company appears to be trading near fair value, we believe that its long-term growth will be less than the broad market. Investors can reasonably expect total returns in-line or slightly above its current dividend yield of 5.7%.

Final Thoughts

Superior Plus’ high dividend yield and monthly dividend payments help this stock to stand out relative to other dividend investments, particularly for income-oriented investors like retirees.

Some due diligence reveals that this particular security has an underwhelming track record. Although its name suggests otherwise, we believe that Superior Plus is unlikely to deliver superior total returns moving forward. We recommend avoiding this stock and instead investing in companies with more tangible characteristics of business quality.