Introduction

Superior Plus Corp. (TSX:SPB) distributes propane in North America and delivers compressed Natural Gas through its Certarus business. Its second-quarter results reflect the seasonally weakest period for propane, with a net loss that is normal for the quarter, and growth at Certarus.

The company reported a Dividend Yield of 2.59% on a Trailing Twelve Months basis. The company reports in United States dollars and pays a quarterly dividend of CAD 0.045 per share, held at the same level as a year earlier, which equals CAD 0.18 a year if the rate is held, by my own arithmetic. Because the dividend is in Canadian dollars and results are in United States dollars, a Payout Ratio is not calculated.

Distribution companies are judged on adjusted EBITDA, which is seasonal here, on leverage, and on growth in newer businesses.

Dividend Sustainability Analysis

The quarter is seasonally weak. Revenue was US$435.4 million and the net loss was US$59.8 million, or US$0.30 per share, which is normal for the second quarter when heating Demand is low. For six months, net Earnings were US$67.1 million. Adjusted EBITDA from operations was US$44.2 million in the quarter and US$297.2 million for six months.

Because the Business is seasonal, a single-quarter payout ratio is misleading. The company earns most of its profit in the winter quarters.

The dividend was held, not raised or cut, which management can do through a weak quarter when it expects stronger winter results.

Dividend Outlook

Leverage is improving. Net Debt was US$1,638.0 million and the Leverage ratio was 3.6 times, down from 3.8 times a year earlier and 4.0 times at the end of last year. The company aims to move toward 3.0 times over time.

Certarus is growing. Compressed natural gas adjusted EBITDA rose 23% to a record US$33.6 million on record volumes, while propane distribution adjusted EBITDA was US$10.6 million.

Guidance was reaffirmed. The company expects about 2% adjusted EBITDA growth this year, leverage of about 3.9 times at year-end and no share Buybacks given growth opportunities.

Investors should not read the yield as a promise. The board declares each dividend, and higher leverage or weaker demand could change it.

Key Growth Drivers

Certarus is the first driver. Its adjusted EBITDA rose 23% on record volumes.

Propane distribution is the second. It provides the seasonal base of earnings.

Cost savings are the third. The Superior Delivers program targets savings and growth.

Deleveraging is the fourth. The ratio fell to 3.6 times.

New contracts are the fifth. Certarus won a data centre contract and a logistics customer.

Potential Catalysts

Winter-quarter results, which drive most profit, are the main checkpoint. Progress toward the leverage target is another.

Weather, propane and natural gas prices and demand for compressed natural gas are the main outside influences.

Key Risks to Consider

Leverage risk is the first. The ratio is 3.6 times, above the 3.0 times target.

Seasonality risk is the second. Profit is concentrated in winter.

Weather risk is the third. Mild winters reduce demand.

Preferred share risk is the fourth. A 2027 preferred Redemption could raise leverage if funded with debt.

Currency risk is the fifth. The dividend is in Canadian dollars and results in United States dollars.

Valuation Perspective

Distribution companies are commonly valued on Enterprise value to adjusted EBITDA and on price to cash flow. A trailing yield of 2.59% is the income measure, and full-year adjusted EBITDA is the better test of coverage.

Investors should look at annual rather than quarterly figures because the business is seasonal.

Investment Outlook

Superior Plus Corp. held its quarterly dividend at CAD 0.045 a share through a seasonally weak quarter, with leverage improving to 3.6 times.

However, leverage is still above target and winter weather drives results. The income case depends on the winter quarters and deleveraging.

Investors should monitor full-year adjusted EBITDA, leverage, Certarus growth and the dividend.