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Summary

  • The dividend yield of each of these companies is below 2.6%.
  • Earnings payout ratios of these five companies are between 80% and 500%.
  • The median prices to sales of these five companies is nearly 4.8 times the median of their top five peers.

I have been on the hunt with my potato cannon (yes, potato cannon; I would lose a high-noon showdown vs. Buffett and his elephant gun) for an irresistible utility to add to my portfolio. The utilities sector is divided into three industries: electric, water and gas. I previously introduced The 7 Best Electric Utilities Americans Can Own, 2 Electric Utilities You Should Avoid and 5 Water And Gas Companies Surging With Potential. This article continues my previous utility sector research and identifies the 5 water and gas companies which appeared most often among the worst 20% of water and gas companies when looking individually at:

  1. Percent above 52-week low;
  2. Dividend yield;
  3. Earnings payout ratio;
  4. Price to earnings;
  5. Price to sales; and
  6. 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 irrelevant companies 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 six points and a minimum of negative six 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 and their respective cumulative point total is available in Table 1.

Chart 1. Cumulative Point Distribution

Table 1. Cumulative Points

Symbol

Company

Points

(NYSEMKT:EGAS)

Gas Natural Inc.

3

(NASDAQ:ARTNA)

Artesian Resources Corp.

2

(NASDAQ:DGAS)

Delta Natural Gas Company, Inc.

2

(NYSE:LG)

The Laclede Group, Inc.

2

(NYSE:NJR)

New Jersey Resources Corp.

2

(NYSE:GAS)

AGL Resources Inc.

1

(NASDAQ:MSEX)

Middlesex Water Co.

1

(NYSE:NWN)

Northwest Natural Gas Company

1

(NYSE:SWX)

Southwest Gas Corporation

1

(NYSE:UGI)

UGI Corporation

1

(NYSE:WGL)

WGL Holdings Inc.

1

(NYSE:ATO)

Atmos Energy Corporation

0

(NYSE:CNP)

CenterPoint Energy, Inc.

0

(NASDAQ:CWCO)

Consolidated Water Co. Ltd.

0

(NYSE:NGG)

National Grid plc

0

(NYSE:PNY)

Piedmont Natural Gas Co. Inc.

0

(NYSE:SJI)

South Jersey Industries, Inc.

0

(NYSE:SJW)

SJW Corp.

0

(NYSE:SRE)

Sempra Energy

0

(NYSE:AWR)

American States Water Company

-1

(NYSE:CPK)

Chesapeake Utilities Corporation

-1

(NASDAQ:CTWS)

Connecticut Water Service Inc.

-1

(NYSE:CWT)

California Water Service Group

-1

(NYSE:NI)

NiSource Inc.

-1

(NYSE:VVC)

Vectren Corporation

-1

(NYSE:AWK)

American Water Works Company, Inc.

-2

(NYSE:NFG)

National Fuel Gas Company

-2

(NYSE:STR)

Questar Corporation

-2

(NYSE:WTR)

Aqua America Inc.

-2

(NASDAQ:YORW)

The York Water Company

-3

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 of all 30 companies was approximately 16.2%, while the median percent above 52-week low of the bottom six companies was approximately 35.1%. While being just over two times the overall median is not horrible, the top six companies median percent above 52-week low was 8.7%, making these bottom six companies more than four times more expensive than the top six. Chart 2 shows the top and bottom six companies by percent above 52-week low, separated by the median percent above 52-week low of all 30 companies.

Chart 2. Top And Bottom Six Companies By Percent Above 52-Week Low

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 bottom six companies was approximately 2.4%. While 2.4% is not significantly lower than 3.1%, 2.4% is approximately only 58% the median dividend yield of the top six companies, which will result in hundreds to thousands of dollars in fewer dividends over the course of a multi-decade long investment. Chart 3 shows the top and bottom six companies by dividend yield, separated by the median dividend yield of all 30 companies.

Chart 3. Top And Bottom Six Companies By Dividend Yield

METRIC 3. EARNINGS PAYOUT RATIO

Earnings payout ratio values were sorted from least to greatest. The median earnings payout ratio of all 30 companies was approximately 64.3%, while the median earnings payout ratio of the bottom six companies was approximately 86%. Experienced dividend investors will appreciate an earnings payout ratio of 86% does not leave much room for dividend growth, while 64.3% is better, the top six companies median earnings payout ratio was only 44.7%, meaning these bottom six companies are much more likely to grow their dividends slower than the top six, or worse be forced to cut or suspend their dividend entirely. Chart 4 shows the top and bottom six (WGL was omitted from Chart 4 for scale and had an earnings payout ratio of 505.7) companies by earnings payout ratio, separated by the median earnings payout ratio of all 30 companies.

Chart 4. Top And Bottom Six Companies By Earnings Payout Ratio

METRIC 4. PRICE TO EARNINGS

Price to earnings values were sorted from least to greatest. The median price to earnings of all 30 companies was approximately 20.3, while the median price to earnings of the bottom six companies was approximately 28.6. An overall median price to earnings of 20.3 is approximately the 19.1 of the S&P 500, making these bottom six companies seem overpriced at 28.6 and the top six companies inexpensive at only 14.5. Chart 5 shows the top and bottom six (WGL was omitted from Chart 4 for scale and had a price to earnings of 117.3) companies by price to earnings, separated by the median price to earnings of all 30 companies.

Chart 5. Top And Bottom Six Companies By Price To Earnings

METRIC 5. PRICE TO SALES

Price to sales values were sorted from least to greatest. The median price to sales of all 30 companies was approximately 1.9, while the median price to sales of the bottom six companies was approximately 3.7. These bottom six companies are nearly 2 times pricier by price to sales than the 1.9 median of all 30 companies and approximately 4.8 times as expensive as the top six companies' median price to sales of 0.8. Chart 6 shows the top and bottom six companies by price to sales, separated by the median price to sales of all 30 companies.

Chart 6. Top And Bottom Six Companies By Price To Sales

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 bottom six companies was approximately 2.7. The median of all 30 companies is 70% that of the bottom six companies' price to book, who are more than 1.8 times as expensive as the top six companies' median 1.5 price to book. Chart 7 shows the top and bottom six companies by price to book, separated by the median price to book of all 30 companies.

Chart 7. Top And Bottom Six Companies By Price To Book

CONCLUSION

As a perfect bell curve, 11 of the 30 companies managed to survive this analysis with at least one total cumulative point, 8 companies ended the analysis with zero points and 11 ended with negative point(s). The distribution of cumulative points for all six metrics can be seen in Chart 1 above and Table 2 below.

Table 2. Cumulative Point Distribution

Points

Companies

-3

1

-2

4

-1

6

0

8

1

6

2

4

3

1

It difficult to justify buying businesses that are comparatively more expensive that perfectly viable alternatives. I use this point based system to help me identify from among a select group of companies those companies which are less and more expensively priced than their peers. Based on my analysis, the 5 worst water and gas companies on the market today are listed below in Table 3.

Table 3. The 5 Worst Water And Gas Companies I Could Find

Symbol

Company

Points

The York Water Company

-3

American Water Works Company, Inc.

-2

National Fuel Gas Company

-2

Questar Corporation

-2

Aqua America Inc.

-2

In addition to the five companies listed in Table 3, unless WGL Holdings Inc. reduces its excessive earnings payout ratio and price to earnings I am confident the market will not treat the company's stock price favorably.

Comment below if you think I have correctly identified five overvalued companies investors should avoid or am wrongly passing over great opportunities.

Source: The 5 Worst Water And Gas Companies I Could Find