The Company in a Nutshell
- PKI is one of the North American fastest growing independent fuel distributors.
- By becoming the largest distributor, the company will benefit from economy of scale.
- PKI is successfully using a growth-by-acquisition method with 20 purchases over the past 10 years.
Parkland Fuel is an independent fuel distributor in Canada. The company is the North America’s fastest growing independent marketer of fuel. PKI delivers gasoline, diesel, propane, lubricants, heating oil and other high-quality petroleum products to motorists, businesses, households and wholesale customers in Canada and the United States. PKI is Canada’s largest fuel retailer and is looking to expand its activities in the U.S.
An appetite for growth is always a bit dangerous when interest rate starts rising. Management had a hard time generating strong profits over the past 5 years. It is one thing to grow your revenues, but you must find a way to make more money as well. The recent shares surge in 2018 (+50% at mid-year) worries us as those stocks tend to drop rapidly upon signs of economic weaknesses.
Dividend Growth Perspective
I like the high yield and the fact that management is paying a monthly dividend. So far, PKI has increased its dividend for 6 consecutive years. We are not talking about a super powered dividend stock here, but definitely a company that suits income seeking investors. PKI obviously focus on its growth by acquisition strategy, but management increased its payout by 1.66% in early 2018.
Parkland is another middle man. It doesn’t own any pipelines or extract any oil. It focuses on distributing oil products and connecting clients at all levels with oil producers. This is a perfect situation as PKI doesn’t suffer from oil price volatility. The middle man always gets their commission. Plus, PKI’s appetite for growth by acquisitions has made it a very successful company. On August 14th 2018, the company announced the acquisition of Rhinehart Oil. This transaction will double PKI’s presence in the U.S. The company is now the largest independent fuel distributor in Canada and will benefit from economy of scale.