I recently concluded a series of articles that I have been writing over the past several months in which I identified what I consider to be the best long-term income stocks (based on dividend growth and yield) for investors by comparing S&P 500 stocks within the same industry sector. In this series of articles, I will be following the same process for small-cap stocks within the S&P 600.
For Part 1, I will be taking a look at Regulated Gas stocks within the Utility sector. These stocks include:
- Laclede Group (LG)
- New Jersey Resources (NYSE:NJR)
- Northwest Natural (NYSE:NWN)
- Piedmont Natural Gas (NYSE:PNY)
- South Jersey (NYSE:SJI)
- Southwest Gas (NYSE:SWX)
- UIL Holdings (UIL)
When ranking these stocks by dividend yield, the order is as follows:
- UIL Holdings - 4.63%
- Northwest Natural - 4.20%
- Laclede Group - 3.67%
- Piedmont Natural Gas - 3.62%
- New Jersey Resources - 3.56%
- South Jersey - 3.46%
- Southwest Gas - 2.86%
When ranking the stocks by dividend growth over the past five years, the order is as follows:
- Southwest Gas - 53.68%
- South Jersey - 43.18%
- New Jersey Resources - 32.35%
- Piedmont Natural Gas - 18.52%
- Laclede Group - 11.39%
- Northwest Natural - 10.84%
- UIL Holdings - 0%
Based on the fact that UIL Holdings has not increased its dividend over the past five years, I cannot recommend it as an option for dividend growth investors. Also, I cannot recommend Northwest Natural due to its low dividend growth.
While Northwest Natural and Laclede Group have similar growth rates over the past five years, they seem to be heading in opposite directions. On 7/28/2010, Northwest Natural paid a $0.415 quarterly dividend. This was increased to $0.435 the next quarter, in-line with prior year increases of 2 cents per share. The past few years, this increase dropped to 1-cent increases per year, and last year, this dropped even further to just a 1/2-cent increase in its dividend. Whereas with Laclede Group, its usual 1-cent yearly increases in its dividend was increased when the company increased its quarterly dividend from $0.425 to $0.44.
For the remaining stocks in the group, when looking at revenue New Jersey Resources has easily seen the highest growth over the past five years, while Laclede Group has seen the largest decline in revenue.
NJR Revenue (TTM) data by YCharts
Just like revenue, in terms of earnings, New Jersey Resources has seen the highest growth over the past five years, while Laclede Group has been the only stock to see a decline in earnings over this time period.
NJR EPS Basic (TTM) data by YCharts
In terms of valuation, New Jersey Resources is currently the most attractively price stock based on trailing P/E ratio, while South Jersey is the least attractively priced.
NJR P/E Ratio (TTM) data by YCharts
Looking at forward P/E ratios, New Jersey Resources remains the most attractively priced stock, while Piedmont Natural Gas moves into the least attractively priced position.
NJR P/E Ratio (Forward) data by YCharts
New Jersey Resources continues to be the most attractively priced stock when looking at price to free cash flow.
While UIL Holdings and Northwest Natural provide the highest yields out of this group of stocks, they both offer zero to very limited dividend growth. So while they may be attractive to investors looking for income now, they cannot be recommend to dividend growth investors.
Laclede Group offers the third highest yield, but also offers very low dividend growth. In addition, the company has seen significant declines in revenue and earnings over the past five years.
In my opinion, New Jersey Resources is easily the best current option for long-term dividend growth investors. It provides an attractive yield with steady growth. The company is a Dividend Contender with 18 consecutive years of dividend increases.
In addition to having the best revenue and earnings growth over the past five years, the company also appears to be the most attractively priced.
One more reason that I recommend New Jersey Resources over any of the other remaining stocks is that the company is the only one out of this group that has (in addition to increasing its dividend) reduced outstanding shares over the past five years.
NJR Shares Outstanding data by YCharts
As always, I suggest individual investors perform their own research before making any investment decisions.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.