South Jersey Industries Inc.: A Dividend Growth Income Company

| About: South Jersey (SJI)

Summary

South Jersey Industries Inc. is growing its business in the natural gas delivery service sector and added 1800 new customers in the last quarter.

South Jersey Industries Inc. Dividend is above average at 3.35% and has been increased 10 of the last 10 years.

South Jersey Industries Inc. total return under performed the Dow for my 43.0 month test period by 4.34% but still had a gain of 36.33% over the test period.

This article is about South Jersey Industries Inc. (NYSE:SJI) and why it's a dividend growth income company that is being reviewed by The Good Business Portfolio. South Jersey Industries, Inc. is an energy services holding company. The Company provides a range of energy-related products and services, primarily through its subsidiaries. SJI is growing its customer base which should allow it to continue its dividend growth going forward. Fundamentals of South Jersey Industries Inc. will be looked at in the following topics, The Good Business Portfolio Guidelines, Total Return And Yearly Dividend, Last Quarter's Earnings, Company Business Overview, and Takeaways And Recent Portfolio Changes.

Good Business Portfolio Guidelines.

South Jersey Industries Inc. passes 9 of 11 Good Business Portfolio Guidelines. These guidelines are only used to filter companies to be considered in the portfolio. For a complete set of the guidelines, please see my article "The Good Business Portfolio: Update To Guidelines and July 2016 Performance Review". These guidelines provide me with a balanced portfolio of income, defensive, momentum, total return, and growing companies that keeps me ahead of the Dow average.

South Jersey Industries Inc. is a mid-cap company with a capitalization of $2.24 Billion. South Jersey Industries Inc. cash flow of $56.8 Million this quarter easily pays the high dividend and leaves some cash left over to increase its infrastructure as its customer base increases. Being a regulated regional utility company there really are not any major competitors for their business directly.

South Jersey Industries Inc. has a dividend yield of 3.35% and its dividend has been increased for 10 of the last ten years easily meeting my guideline for dividend growth. The average payout ratio of the dividend is high at 69% over 5 years. The dividend is well above average for the market. South Jersey Industries Inc. is therefore a dividend growth income investment, but total return missed by about 1% average per year, which considering the great steady above average growing dividend is not much to worry about.

South Jersey Industries Inc. last quarterly cash flow was at $56.8 Million which leaves South Jersey Industries Inc. enough of cash, allowing it to pay its high dividend and have some left over for its continued infrastructure development. The average dividend payout ratio over the last 5 years is 69%, which is high and allows South Jersey Industries Inc. to invest in growing the business and dividends in the future.

I also require the CAGR going forward to be able to cover my yearly expenses. My dividends provide 3.1% of the portfolio as income and I need 1.9% more for a yearly distribution of 5%. South Jersey Industries Inc. has a three-year CAGR of 5% just meeting my requirement. Looking back five years $10,000 invested five years ago would now be worth over $14,000 today (from S&P IQ). This makes South Jersey Industries Inc. a acceptable investment for the total return investor but you buy this company for its dividend growth and income.

South Jersey Industries Inc. S&P Capital IQ rating is three star or hold with a target price of $29. South Jersey Industries Inc. is then slightly above fair price at present. South Jersey Industries Inc. PE is bit high right now at 22 for their projected 2017 earnings. Most large debt companies are at their highs right now because of the low interest rates on their large debt.

Total Return And Yearly Dividend

The Good Business Portfolio Guidelines are just a screen to start with and not absolute rules. When I look at a company, the total return is a key parameter to see if it fits the objective of the Good Business Portfolio, the total return guideline was just added to my list of guidelines. South Jersey Industries Inc. slightly missed its total return in my 43.0 month test compared to the Dow average. I chose the 43.0 month test period (starting January 1, 2013 and ending to date) because it includes the great year of 2013, and other years that had fair and bad performance. Modeling the Dow average is not an objective of the portfolio but just happened by using the 11 guidelines as a filter for company selection. The fair total return and high dividend makes South Jersey Industries Inc. a choice for the dividend growth income investor. The dividend has been increased for 10 of the last ten years. DOW's 43.0 month total return baseline is 40.67%. The total return during the test period for South Jersey Industries Inc. is below the DOW average at 36.33% missing the DOW baseline by 4.34%. In 2013 a good year for the market South Jersey Industries Inc. missed the DOW gain of 27% in total return at 9.35% total return. YTD total return is 35.55% well above the DOW average of 6% YTD. Looking at these data points South Jersey Industries Inc. pretty much misses the DOW average in good years and beats the DOW average in bad markets.

Dow Baseline 40.67%

Company Name

43.0Month total return

Difference from DOW baseline

Yearly Dividend percentage

South Jersey Industries Inc.

36.33%

-4.34%

3.35%

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Last Quarter's Earnings

For the last quarter on May 6, 2016 South Jersey Industries Inc. reported earnings that meet expected earnings at $0.80 compared to last year at $0.86 and expected at $ 0.80. Revenue was lower at $333.0 Million down from last year by 13.0% year over year and missed estimated revenue by $69.6 Million. This was a fair report showing the same earnings from the same quarter of 2015 after not having the $8.5 Billion reduction in investment tax credits for this quarter compared to the 2015 quarter. Earnings for the next quarter will be out August 5 and is expected to be $0.14 compared to last year at $0.03

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Business Overview

South Jersey Industries, Inc. is an energy services holding company. The Company provides a range of energy-related products and services, primarily through its subsidiaries. The Company operates through various segments, including Gas utility operations (SJG), Wholesale energy operations, SJE, On-Site energy production, Appliance service operations and Corporate & Services. The Company groups its non utility operations into over two categories: Energy Group and Energy Services. Energy Group includes wholesale energy, retail gas and other, and retail electric operations. Energy Services include on-site energy production and appliance service operations. One of my guidelines is that the dividend should have increase in 7 of the last ten years, SJI has grown the dividend in each of the last ten years and has a annual dividend growth rate of 10%. This makes SJI a great dividend growth income company. I would buy South Jersey Industries Inc. its growth is almost assured as the population grows, and many existing homes are switching to gas. The regulated utility business model also allows money spent for pipeline expansion to be included in the rate payers base, reduction the stress on the cash flow. In this quarter the company added 1800 new customers showing that the company can grow as more people are switching to gas for their energy needs. In May they also offered 6.5 Million shares with the proceeds to be used for capital expenditures in the regulated business and for its utility business. South Jersey Industries Inc. try's to be a good neighbor as shown in above graphic.

Takeaways and Recent Portfolio Changes

South Jersey Industries Inc. is a good investment for the dividend growth income investor with its annual dividend growth rate (DGR) of about 10% and slightly below average total return compared to the DOW average over my test period and other periods. South Jersey Industries Inc. will be considered for The Good Business Portfolio when an open slot occurs because of its good DGR. The Good Business Portfolio try's to use all kinds of investing and not just use one style, so SJI is a candidate for the dividend growth group.

Sold some Cabela's CAB covered calls, sold August $55's. If the premium gets to 20% of the sold premium price, I will buy them back with the hope that CAB goes up so I can sell the calls again in the same month for a Double.

Sold some covered calls on Harley Davidson (NYSE:HOG), sold August 50's. If the premium gets to 20% of the sold premium price, I will buy them back with the hope that HOG goes up so I can sell the calls again in the same month for a Double. The HOG price is presently above the strike price and I will move the calls up and out if this is true at close to expiration date.

The Good Business Portfolio generally trims a position when it gets above 8% of the portfolio. Below are the four top positions in The Good Business Portfolio. Johnson and Johnson (NYSE:JNJ) is 8.7% of the portfolio, Altria Group Inc. (NYSE:MO) is 8.0% of the portfolio, Home Depot (NYSE:HD) is 8.0% of portfolio, Boeing (NYSE:BA) is 7.8% of the Portfolio, therefore MO, JNJ and HD are now in trim position with Boeing getting close.

Boeing is going to be pressed to 10% of the portfolio because of it being cash positive on individual 787 plane costs, announced in the 2015 fourth quarter earnings call. For BA from the second 2016 earnings call deferred costs increased $33 Million a small amount and I project positive cash flow on the 787 program in the third quarter of possibly $100 Million.

JNJ will be pressed to 9% of the portfolio because it's so defensive in this post Brexit world.

For the total Good Business Portfolio please see my recent article on Good Business Portfolio: 2016 first-quarter earnings and performance for the complete portfolio list and performance. Become a real time follower and you will get each quarters performance after the earnings season is over.

I have written individual articles on CAB, JNJ, EOS, GE, IR, MO, BA, AA, Omega Health Investors and HD that are in The Good Business Portfolio and other companies being evaluated by the portfolio. If you have an interest please look for them in my list of previous articles.

Of course this is not a recommendation to buy or sell and you should always do your own research and talk to your financial advisor before any purchase or sale. This is how I manage my IRA retirement account and the opinions on the companies are my own.

Disclosure: I am/we are long CAB, BA, JNJ, MO, HOG, HD.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.