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Dividend King NW Natural Is Once Again Overpriced


  • NWN was briefly in value territory earlier this year.
  • But the stock has rebounded sharply, and despite the company's exemplary dividend history, it's way too expensive.
  • NWN is an avoid.

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Very few stocks in the entire world can match the dividend increase streak of a small utility in Oregon. NW Natural (NYSE:NWN) is a gas utility that serves about 2.5 million customers in Oregon and Washington combined, along with a very small water utility business, producing about $800 million in total annual revenue. Despite its small size, NWN has managed to boost its dividend for more than 60 consecutive years, putting it in extremely select company when it comes to dividend increases.

While that's all well and good, with NWN having rallied hard from the bottom set in March, it looks to me like the stock is once again quite expensive. Investors tend to pay premiums for stocks with dividend track records like NWN's, and this time does not appear to be different. So, while the stock is cheaper than it was before the crash, I think the opportunity to buy NWN at a reasonable price has come and gone.

Very limited growth

Utilities in general don't grow that quickly because their pricing is regulated by local authorities, and customer bases usually expand slowly over time. That means that both pricing power and volume increases are limited, so revenue growth is commensurately limited. NWN isn't immune from this, as we can see below, with revenue plotted in millions of dollars for the past three years, as well as forecasts for this year and next year.

Source: TIKR.com

Revenue for 2020 is slated to be just 4% higher than it was three years ago, after 2018 saw negative growth, with some bounce back last year, and more growth this year. NWN shouldn't be expected to grow quickly given it is a regulated utility, but it has tried over the years to boost its top line expansion with a slew of acquisitions.

This article was written by

Josh Arnold profile picture

Josh Arnold has been covering financial markets for a decade, utilizing a combination of technical and fundamental analysis to identify potential winners early on in their growth cycles. Josh's focus is mainly on growth stocks. His goal is efficient and profitable use of capital, which overly rigid buy-and-hold strategies do not allow.

Josh is the leader of the investing group Timely Trader where he focuses on limiting risk and maximizing potential reward. Features of Timely Trader include: real-time alerts, a model portfolio, technical charts, sentiment indicators, and sector analysis to find the best trading opportunities. Learn more.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (2)

coastalcruiser profile picture
What's your opinion on it now that has fallen further and is raising their dividend. .05?
First time I see an article giving negative outlook. Thanks for being honest.
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