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Subject:  Inergy Going For Radical Shift In Its Business M Date:  5/3/2012  8:59 PM
Author:  Razz037 Number:  4 of 10

I had not taken a look at Inergy L.P. (NRGY) in a couple of years and when I started digging into the just released quarterly earnings report, I was in for a big surprise. Inergy - a long time propane distribution company - has put plans in motion to get almost completely out of the propane business.

Inergy had been an interesting investment prospect due to a long history of quarterly dividend increases. Starting around 2001, the company grew by buying up smaller, local propane distributors. Along the way, the dividend increased every quarter from 31.25 cents per share - split-adjusted - at the end of 2001 up to 70.5 cents paid in August 2010. Unfortunately, the company probably paid out too much of income as dividends, piled on a lot of debt and the dividend increase train stopped in 2010. The payout remained at 70.5 cents until the new dividend structure announced last week and will be discussed in a moment.

In 2008, Inergy started to pick up some natural gas midstream assets - primarily storage and processing locations with a small amount of gas pipeline. In 2011, the company quickly filed for and spun-off a portion of the midstream assets as a new MLP - Inergy Midstream L.P. (NRGM). The proceeds from the spin-off were used to pay down about one-third of Inergy's long-term debt. The move did not do much to increase the Inergy prospects in the eyes of the market and post-spin off, the shares continued to decline, from around $24 to below $16 a few weeks ago. At the $2.82 per year dividend rate, the yield ballooned to over 17%.

Of course the dividend was unsustainable and on April 26, 2012, the company declared a quarterly dividend of 37.5 cents - $1.50 per year - a 47% reduction in the distribution. However, this was not the big news. On the same day, the company also announce it was divesting itself of its retail propane business.

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