South Jersey Industries Offers Good Growth/Dividend Value

Dec.14.11 | About: South Jersey (SJI)

South Jersey Industries (NYSE:SJI) is a holding company with subsidiaries in natural gas distribution in southern New Jersey and drilling and gathering of natural gas. The company has grown profits and dividends at 6-10% pace over the last ten years earning a 13-15% return on equity. It should continue to increase profitability as well as an enhanced rate of dividend growth as a result of:

(1) Recent increase in its base rates,

(2) A rise in the number of profitable projects in its nonutility operations,

(3) Growth in its customer base plus an increase in customers converting form other fuels to natural gas, and

(4) A rationalization of its nonutility operations to focus on higher profit investments.

The primary negatives are rising operating expenses and taxes.

SJI is rated B++ by Value Line, has a debt to equity ratio of 38% and its stock yield 3.0%.

Statistical Summary

Charts

Stock Yield

Dividend Growth Rate

Payout Ratio

# Increases Since 2001

SJI

3.0%

9%

48%

10

IND*

4.6

3

60

NA

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Debt/Equity

ROE

EPS Down Since 2001

Net Margin

Value Line Rating

SJI

38%

15%

1

10%

B++

IND*

54

10

NA

5

NA

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*IND is the average for the Natural Gas Utility Industry as compiled from Value Line data

Note: SJI has a very unusual chart. Its high prior to the 2008-2009 decline was made in May of 2007 (straight red line); although the stock touched that level several times after. It bottomed in October of 2008 and the November 2008 trading high (green line) was basically at the same level as the May 2007 high. The stock was in a long term up trend until recently (blue lines). It violated the lower boundary of that trend and appears to have reset to an intermediated term trading range. The wiggly blue lines are Bollinger Bands. We own a full position in SJI and it is currently on our Growth and Income Buy List. The lower boundary of its Sell Half Range is $83.

Given the attractive yield of this stock as well as the anticipated growth in the dividend, SJI is an excellent candidate for income oriented investors. In addition, since the stock is at a historically attractive valuation, investors can also expect capital appreciation. We own the stock and suggest further investigation for those investors seeking a growing income stream with the opportunity for capital gains.

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Disclosure: I am long SJI.