Suburban Propane (SPH) Says, "Just Add Water"

In a move that is not uncharacteristic of an overpriced stock, Suburban Propane Partners (SPH) has issued 2.2 million shares at a market price of $41.50. SPH, a 10 year-dividend achiever, might as well shout from the hilltops that they don't think their price can go much higher therefore if we can unload these share on the public then so much the better.

SPH basically said that it was going to pay down debt with the money raised from the sale of the stock. So what they're doing is watering down the stock (diluting per share earnings) in a maneuver known as "Robbing Peter to Pay Paul" method of accounting. You've got to admit, it is a great strategy from the perspective of the company with overvalued shares but current shareholders are getting the shaft. In a May 5th article, I pointed out that SPH was at a relatively high price and should be considered for selling, the recent issuance of shares is the final nail in that coffin.

By the way, who do we think is buying up all these dilutive shares? All the companies that were involved in the syndication like Wells Fargo Securities (WFC), BofA Merrill Lynch (BAC), Citi (C) and Goldman, Sachs & Co. (GS) distribute any unwanted shares to the mutual funds that they manage. In effect, the mutual fund shareholders become the neighborhood "chumps." Touc.