Reach For Star Group's 6+% Yield Instead Of High-Yield Debt

SGU is one of the few companies to raise their dividend in April.
Current valuation looks like a promising entry point for income investors.
SGU's distribution business model generates great free cash flow, and is recession resistant.
Yielding over 6% with a spread to 30Y UST at extreme levels, the risk/reward in SGU looks better than High Yield debt.
In 2017 SGU elected for dividends to be treated as if issued by a corporation.  Thus, investors receive a 1099 form for tax purposes.  There is no K-1 issued anymore.
This article was highlighted for PRO subscribers, Seeking Alpha’s service for professional investors. Find out how you can get the best content on Seeking Alpha here. Introduction:
When I started contributing articles on Seeking Alpha over seven years ago, I did so with the intention of providing something different from the usual takes on the most followed stocks. I wanted to write about companies or securities that didn't get a lot of attention from other contributors. If I saw an article already out there with a similar view as mine, then I just moved onto something else. I'm going back to these roots today by discussing a company that hasn't seen an article here for almost five years.

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Star Group L.P (SGU), is a home heating oil and propane distributor. I have an affinity for these types of business models. It reminds me of an article I wrote years ago about Reliance Steel & Aluminum Co. (RS). These stocks fall squarely into the bucket I consider value investing. Overall the market usually loves distribution models. They produce great free cash flows with less economic risk than the manufacturers of those products themselves. It's the nature of the model. When the economy slows down, the distributor can allow working capital to decline reducing leverage naturally. Since the distributor is on the front lines where demand/supply meet, they can react quickly to changing circumstances. It's usually a low... Read more