For a Long-Term Dividend Play and Total Return, Go with AGL

Jun.25.09 | About: AGL Resources (GAS)

By Brandon Clay

Sometimes investors forget about stodgy and consistent stocks, but these should be prized characteristics. Take AGL Resources (AGL), for example. The company would hardly be considered “sexy” by the Wall Street crowd. AGL is a natural gas utility serving customers in six US states. Not very exciting, yes, but Georgia-based AGL is 153 years old. Any company with a century-and-a-half of longevity has staying power. Not coincidentally, AGL provides consistent dividends.

First-quarter profits surged 34% for AGL this year. The company earned $119 million, or $1.55 per share, compared with $89 million, or $1.16 per share a year earlier. The per-share performance beat analyst expectations by 29 cents. In this market environment, any company that can report a 34% jump in profits is worth an investor’s attention. AGL Resources far outperformed the S&P 500 in the last year, falling just 7.7% compared to a 32% decline for the broader market.

Although natural gas is a commodity, AGL is a utility. The stock doesn’t trade like a resource stock. This means investors can get a dependable earner at just under 10 times trailing earnings without the risk and volatility that mark straight commodity plays. Try to find an energy or materials stock trading at just 10 times trailing earnings with such low risk and volatility.

The company’s annual dividend is $1.72 a share - a 5.5% yield at the current share price. AGL’s dividend yield is higher than that of the broader market even though the stock trades at a discount to both its peer group and the S&P 500. The company even boosted its payout earlier this year. Moreover, AGL has steadfastly rewarded shareholders every quarter since 1948. The dividend appears safe, as AGL’s payout ratio is just under 51%.

AGL shares have rallied about 30% since March, due in part to low natural gas prices. Despite the strong run-up, there is no reason long-term investors can’t start building a position in AGL right now. Technically speaking, the shares recently traced a golden cross, where the 50-day EMA crossed over and above the 200-day EMA. AGL should also find strong support around the 50-day average, which is around $30.00.

In a market sorely lacking steady, dependable dividend-paying stocks, AGL Resources could be the answer for portfolios starved for reliable income. AGL is just the type of stock value investors should be seeking. For a long-term dividend play and a total return stock, go with AGL.

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