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Summary

  • A $10,000 investment in these 5 companies would yield an additional $1,100 in dividends over the next decade.
  • The earnings payout ratio of each of these 5 companies is less than 50%.
  • Each of these 5 companies P/E ratio is currently less than the 19.1 of the S&P 500.

I have been investigating investment opportunities in the utilities sector and previously provided a cursory overview of companies classified by Bloomberg as an electric utility in The 7 Best Electric Utilities Americans Can Own and 2 Electric Utilities You Should Avoid. As a continuation of this previous research this article identifies the 5 water and gas utility sector companies which appeared most often among the top six companies when looking individually at:

  • percent above 52-week low;
  • dividend yield;
  • earnings payout ratio;
  • price to earnings;
  • price to sales; and
  • price to book.

METHODOLOGY

Bloomberg was used to obtain the list of companies classified as a water or gas utility sector company, which resulted in a list of 100 companies currently traded on an American exchange. All metric and trading data was obtained from Yahoo! Finance. To quickly eliminate companies impossible to analyze or recommend I removed companies which had:

  1. a share price less than $0.01;
  2. no 52-week high/low data;
  3. no price to earnings, price to book or price to sales data;
  4. no dividend yield; and
  5. an average trading volume of less than 10,000 shares.

Applying these quick filters distilled the original list of one hundred companies down to the list of 30 companies analyzed in this article. These 30 companies were compared against each other using the six metrics listed above. For each metric the companies were sorted by their respective metric value from least to greatest, except for dividend yield which was sorted from greatest to least. Each company was assigned an initial point value of zero. A point was then assigned to each of the top six companies of each metric and a point was subtracted from each company in the bottom six of each metric. This means a maximum of 6 points and a minimum of -6 points was possible. The distribution of cumulative points for all six metrics can be seen below in Chart 1 and a complete list of the 30 companies analyzed is available in Table 1.

Chart 1. Cumulative Point Distribution

Table 1. The 30 Water And Gas Companies Analyzed

Symbol

Company

(NASDAQ:ARTNA)

Artesian Resources Corp.

(NYSE:ATO)

Atmos Energy Corporation

(NYSE:AWK)

American Water Works Company, Inc.

(NYSE:AWR)

American States Water Company

(NYSE:CNP)

CenterPoint Energy, Inc.

(NYSE:CPK)

Chesapeake Utilities Corporation

(NASDAQ:CTWS)

Connecticut Water Service Inc.

(NASDAQ:CWCO)

Consolidated Water Co. Ltd.

(NYSE:CWT)

California Water Service Group

(NASDAQ:DGAS)

Delta Natural Gas Company, Inc.

(NYSEMKT:EGAS)

Gas Natural Inc.

(NYSE:GAS)

AGL Resources Inc.

(NYSE:LG)

The Laclede Group, Inc.

(NASDAQ:MSEX)

Middlesex Water Co.

(NYSE:NFG)

National Fuel Gas Company

(NYSE:NGG)

National Grid plc

(NYSE:NI)

NiSource Inc.

(NYSE:NJR)

New Jersey Resources Corp.

(NYSE:NWN)

Northwest Natural Gas Company

(NYSE:PNY)

Piedmont Natural Gas Co. Inc.

(NYSE:SJI)

South Jersey Industries, Inc.

(NYSE:SJW)

SJW Corp.

(NYSE:SRE)

Sempra Energy

(NYSE:STR)

Questar Corporation

(NYSE:SWX)

Southwest Gas Corporation

(NYSE:UGI)

UGI Corporation

(NYSE:VVC)

Vectren Corporation

(NYSE:WGL)

WGL Holdings Inc.

(NYSE:WTR)

Aqua America Inc.

(NASDAQ:YORW)

The York Water Company

METRIC 1. PERCENT ABOVE 52-WEEK LOW

Percent above 52-week low values were sorted from least to greatest. The median percent above 52-week low value of all 30 companies was approximately 35.1%, while the median percent above 52-week low value of the top six was approximately 8.7%. Additionally, all of the companies in Table 2 except CNP each currently trades below the midpoint between their respective 52-week high and low.

Table 2. Top Six By Percent Above 52-Week Low

Company

Percent Above 52-Week Low

ARTNA

5.9

CNP

8.1

MSEX

8.6

SJW

8.7

DGAS

9.2

CWCO

9.9

Investors can profit from purchasing quality companies that are trading at a discount to their intrinsic value. Gains are not made at the time of sale, gains are made at the time of purchase. Over pay when you purchase and you may have to wait longer for, or worse yet never realize, a gain. I use percent above 52-week low to help identify companies potentially trading at a discount to the intrinsic value.

METRIC 2. DIVIDEND YIELD

Dividend yield values were sorted from greatest to least. The median dividend yield value of all 30 companies was approximately 3.1%, while the median dividend yield value of the top six was approximately 4.2%. This means the companies in Table 3 yield approximately 140% that of the average water and gas utility. Over the course of ten years, assuming an initial investment of $10,000 and no dividend increases, this difference in yield would result in the receipt (or lost, depending on your perspective) of an additional $1,100 in dividends!

Table 3. Top Six Ranked By Dividend Yield

Company

Dividend Yield

NGG

6.3

EGAS

5.2

WGL

4.3

NWN

4.0

CNP

3.9

ARTNA

3.8

METRIC 3. EARNINGS PAYOUT RATIO

Earnings payout ratio values were sorted from least to greatest. The median earnings payout ratio value of all 30 companies was approximately 64.3, while the median earnings payout ratio value of the top six was approximately 44.7. This means the average water and gas utility may have less of an ability to raise their dividend in the future than the companies in Table 4.

Table 4. Top Six Ranked By Earnings Payout Ratio

Company

Earnings Payout Ratio

NJR

37.5

UGI

40.7

CPK

44.6

NFG

44.7

WTR

49.0

SWX

50.0

METRIC 4. PRICE TO EARNINGS

Price to earnings values were sorted from least to greatest. The median price to earnings value of all 30 companies was approximately 20.3, while the median price to earnings value of the top six was approximately 14.5. This means the average water and gas utility is approximately 1.4 times more expensive by price to earnings than the companies in Table 5.

Table 5. Top Six Ranked By Price To Earnings

Company

Price To Earnings

NJR

12.1

NGG

13.1

GAS

14.0

EGAS

15.0

DGAS

16.9

UGI

16.9

METRIC 5. PRICE TO SALES

Price to sales values were sorted from least to greatest. The median price to sales value of all 30 companies was approximately 1.9, while the median price to sales value of the top six was approximately 0.8. This means the companies in Table 6 are approximately 59% less expensive by price to sales than the average water and gas utility.

Table 6. Top Six Ranked By Price To Sales

Company

Price To Sales

NJR

0.6

UGI

0.7

EGAS

0.8

WGL

0.8

LG

1.1

ATO

1.1

METRIC 6. PRICE TO BOOK

Price to book values were sorted from least to greatest. The median price to book value of all 30 companies was approximately 1.9, while the median price to book value of the top six was approximately 1.5. This means the average water and gas utility is approximately 1.3 times more expensive by price to book than the companies in Table 7.

Table 7. Top Six Ranked By Price To Book

Company

Price To Book

EGAS

1.1

CWCO

1.2

LG

1.4

NWN

1.6

ARTNA

1.6

WGL

1.6

CONCLUSION

Only 11 of the 30 companies managed to survive this analysis with at least one total cumulative point. The distribution of cumulative points for all six metrics can be seen in Chart 1 above and Table 8 below.

Table 8. Cumulative Point Distribution

Points

Companies

-3

1

-2

4

-1

6

0

8

1

6

2

4

3

1

The 5 companies that cumulatively outranked the other 25 are as follows:

3 Points

  • Gas Natural Inc.

2 Points

  • Artesian Resources Corp.;
  • Delta Natural Gas Company, Inc.;
  • The Laclede Group, Inc.; and
  • New Jersey Resources Corp.

Comment below if you think future natural gas prices will blow up one of these companies or the coming challenges these water providers will face will erode their ability to pay their dividend!

Source: 5 Water And Gas Companies Surging With Potential