GLP - Earn +7% From Gas And Groceries

2023-06-13 07:35:00 ET

Summary

• I love getting income from everyday sources.
• I love to own the gas pump, and I love to hold the grocery store.
• You no longer have to worry about selling shares to unlock value. You can let those companies pay you directly.

Co-authored with Treading Softly.

When was the last time you ran to the grocery store? Did you walk there or ride a bike? Take a car?

Going to the grocery store is a mundane errand; unless you have your groceries delivered to your door, then someone else must perform the mundane part of the errand for you. You go out and buy the groceries you need. The price that appears on the cash register hurts you. You jump back in your transportation, and you return home.

Did you know that you have been paying somebody every step along the way?

You had to put gas in your car or plug it in to get electricity. You paid every single company that you bought groceries from – those canned goods, the meat, the milk, and the snack food. All of that is manufactured and produced by somebody with a profit margin, along with the store.

As an income investor, my goal is to make money off of the mundane parts of life. If the boring things in life pay you, then you can pay to do the exciting things in life. So I want to make my grocery store trip will pay me, and my gas pump pay me.

Today, I want to look at two outstanding fixed-income opportunities to get paid for living everyday life.

Let's dive in!

Pick #1: Global Partners LP 6.875% Notes due 2029 - YTM 8.3%

Global Partners LP ( GLP ) is one of the three largest publicly traded fuel distributors. This MLP has very attractive common units as well as preferred securities, but today I want to focus on the highest level of the capital stack - their traditional bond offering: Global Partners LP 6.875% Notes due 2029 (CUSIP 37954FAJ3 ).

GLP 's business model is very straightforward. They buy fuel from oil and gas producers, and they distribute it to consumer-facing gas stations. They also own a large number of convenience stores and either operate them themselves or lease the facilities to be operated by third parties as well as fuel terminals for storage. The gas station and consumer store and convenience store market is extremely segmented. So routinely, we will see GLP purchasing other companies that operate convenience stores and picking up two, three, or even four locations only. Source .

One reason that we like GLP over other fuel distributors is that they have a large holding of real estate. They're not simply distributing gasoline to locations, but they're distributing the gasoline to locations and are the landlords of places with irreplaceable real estate. 2022 was an exceptional year for fuel margins for fuel distributors and all three of the major fuel distributors saw record-breaking margins. It was in 2022 that High Dividend Opportunities decided to step out of GLP common and focus on the fixed-income offerings of their preferred securities and their traditional bonds. The reason for this was, as year-over-year comparisons for 2023 start coming out, they'll look negative compared to the extra large margins of 2022, and would likely weigh heavily on the common units. So we moved into the fixed-income offerings to lock in a high yield and not have to worry about as much downside after seeing a large upside in 2022.

GLP saw a slight decrease in EBITDA YoY as expected, as well as an increase in their interest expenses. EBITDA coverage of their interest was still over 3x.

So we are not concerned about their ability to pay their debt. While the common unit distribution may see pressure if the margins continue to decline, their interest coverage is strong. This makes their 2029 bond highly attractive.

Pick #2: B&G Foods Inc. 5.25% Notes due 2025 - YTM 7.5%

When you go to the grocery store and buy the necessary groceries, you rarely consider all of the manufacturing that goes into producing all of those groceries. There has been a rise in America of the farm-to-table movement that really focuses on that process but for the vast majority of goods, most consumers are clueless about the in-between. You might know big-name brands like Crisco or Jolly Green Giant, but not really know who owns them.

We have previously covered B&G Foods, Inc. ( BGS ) and explained why we avoided the common – you can see that here . When we did that, we highlighted that the common dividend is likely to be cut, which then it was. We also highlighted that the B&G Foods Inc., 5.25% Notes due 2025 (CUSIP 05508RAE6 ) were more attractive as a long-term investment for income.

BGS common shares are not an attractive investment. The company is still quite leveraged and is working on streamlining its portfolio of holdings. Management's focus is less on rewarding common shareholders and more on reducing debt – as a bondholder that makes me very happy.

Looking at the first quarter of 2023 , we can see that their inflationary price adjustments are starting to reach their EBITDA. However, higher interest rates are also impacting their interest expense, to the point where these are canceling each other out. Overall, their interest coverage has actually declined.

However, management was able to reduce their overall debt. They continue to reiterate that their focus is to take any excess cash flow after dividends are paid and use it to immediately reduce their debt. So how did the bond market react to lower coverage, but less overall debt for the company?

The trading price for the bond has risen, even though interest rates have climbed further. This shows the bond market's increased belief in the company's ability to redeem the bond at maturity.

So next time you go to the grocery store, just remember that you are paying HDO members! I'm happy to be a bondholder in a company focused on reducing its debt and actively doing so.

Conclusion

With these fixed-income investments, we are able to enjoy a routine and steady income from two solid companies. By holding these two fixed-income investments, I can enjoy income every time someone visits a gas station or every time someone runs to the grocery store.

I want you to have a retirement that is paid for by dividends. You can enjoy a steady and solid income without ever having to reduce your positions in different companies. Gone are the days of having to sell shares to unlock value to then turn around and buy your groceries. Arrived are the days when you can buy groceries using money paid to you by people who are buying groceries. Likewise, when the gas prices rise at the gas station, and everyone else is grumbling about how expensive it is to buy gas, you can go around and thank each one of them for paying to fill up your tank because their purchases pay the bill.

The keywords here are routine and mundane. Things that you have to do and others have to do, and they have no choice but to do it and don't even consider it for a second. That's the kind of income investment you want to have. You can achieve that goal by investing in these two traditional bonds.

That's the beauty of our Income Method. That's the beauty of incoming investing.

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