Pat McKeough responds to many personal questions about specific stocks and other investment topics from the members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle.

This week, an Inner Circle member asked about the wisdom of taking profits on a high-yielding stock whose shares have had a big run-up in price. Pat assesses the prospects of this gas station operator which has done an astute job of franchising its stations but also pursues a growth-by-acquisition that adds risk in a competitive industry.

Q: Hello again Pat: I bought Parkland Fuel Corp. about 18 months ago and have enjoyed the wonderful yield and am up 60% on the stock value. I am tempted to realize my capital gain. What are your thoughts on this stock?

A: Parkland Fuel Corp., (symbol PKI on Toronto; www.parkland.ca), operates gas stations, convenience stores and a fuel distribution business, mostly in western Canada and Ontario.

The company was called Parkland Income Fund prior to its conversion to a dividend-paying corporation on December 31, 2010.

Parkland owns 141 rural gas stations and convenience stores. Its brands include Fas Gas Plus, Race Trac Gas and Short Stop (convenience stores). Many stations sell propane in addition to gasoline and diesel fuel. The company also operates Esso gas stations in western Canada and Ontario under a licensing deal with Imperial Oil Ltd. (symbol IMO on Toronto).

Parkland continues to sell its company-owned stations to franchisees. This lets it collect rent and commissions on fuel sales without having to staff and operate the stations.

As well, the company sells fuel to commercial customers and 583 independent gas stations. In addition, Parkland recently converted its Bowden oil storage tanks near Red Deer, Alberta, into a more profitable distribution terminal. The Bowden facility holds 220,000 barrels.

Parkland continues to expand by acquisition. In January 2010, it paid $228.4 million for Bluewave Energy Limited Partnership, which is Canada’s largest distributor of fuels under the Shell brand.

In January 2011, Parkland paid $24.0 million for Island Petroleum, which distributes home heating oil in Prince Edward Island. In June 2011, it bought Cango Inc., which distributes fuel to 155 Ontario gas stations, for $20.0 million.

The Growing Power of Dividends Learn everything you need to know in '7 Winning Strategies for Dividend Investors' for FREE from The Successful Investor. The Best Canadian Dividend Stocks to Buy: REITS Canada and other Top Canadian Dividend Stocks.  I consent to receiving information from The Successful Investor via email. I understand I can unsubscribe from these updates at any time.

Dividend stocks: Parkland counts on three factors to help double earnings by 2016

In the three months ended September 30, 2012, the company’s revenue rose 0.5%, to $1.07 billion from $1.06 billion a year earlier. Parkland closed some unprofitable gas stations in the latest quarter, which cut its sales volumes by 1%. That offset a 2% rise in fuel prices.

Earnings jumped 30.1%, to $31.8 million, or $0.44 share. A year earlier, it earned $24.5 million, or $0.36 a share. However, a $14.4-million pre-tax loss on the sale of assets depressed the year-earlier earnings. Cash flow per share fell 20.2%, to $0.67 from $0.84.

Parkland’s long-term debt of $245.6 million is a moderate 19% of its market cap. It also holds cash of $43.9 million, or $0.65 a share.

The company now aims to double its earnings by 2016. Acquisitions and internal growth will account for a third of this increase.

As part of this plan, Parkland recently agreed to buy the assets of Elbow River Marketing Limited Partnership. Through a fleet of 1,200 railcars, this business distributes a wide variety of fuels, including propane and crude oil.

The company feels that improving the profitability of its wholesale fuel supply business will provide another third of its profit-target increase. The final third will come from improving its efficiency, cutting administrative costs and reducing the time lost to employee injuries.

The company pays monthly dividends of $0.085 a share. The annual rate of $1.02 yields 5.2%.

In the Inner Circle Q&A, Pat examines the added risk of Parkland’s growth-by-acquisition strategy in a highly competitive business. He balances that against the the fact that the company operates mainly in rural regions, where it faces fewer rivals. He concludes with his clear buy-hold-sell advice on the stock.

(Note: If you are a current member of the Inner Circle, please click here to view Pat’s recommendation. Be sure to log in first.)

COMMENTS PLEASE—Share your investment experience and opinions with fellow TSINetwork.ca members

When you invest in dividend stocks, do you generally opt for more conservative stocks (utilities, for example) whose dividends seem safe? Or do you often look at more aggressive dividend stocks in hopes of higher total returns? Let us know what you think.