NorthWestern: Mid-Pandemic Update On This 4.8%-Yielding Utility

Oct. 05, 2020 3:52 PM ETNorthWestern Corporation (NWE)17 Comments


  • NWE is an electric and gas utility serving an area of the Rocky Mountain region/middle America that enjoys above-average population growth.
  • The company maintains a strong, investment-grade balance sheet with no near-term debt maturities and ample liquidity.
  • COVID-19 certainly had a negative impact on the utility, with both revenue and earnings taking a big hit in the first half of the year.
  • In the second half of the year, however, the utility's performance should rebound strongly, which is not being priced into the stock.
  • NWE's 4.8% yield plus its expected growth rate of 4-5% results in an attractive dividend growth investment opportunity.
  • Looking for a helping hand in the market? Members of High Yield Landlord get exclusive ideas and guidance to navigate any climate. Get started today »

Investment Thesis

NorthWestern Corporation (NASDAQ:NWE) is a publicly listed, regulated utility operating in Montana, South Dakota, and Nebraska. The stock has been beaten down this year, shedding 30% off its price from investor reaction to the damage done by COVID-19. But how much has the coronavirus pandemic (and the associated business curtailments) negatively affected NWE?

I would argue that, despite substantial damage done by COVID, the stock price does not come close to pricing in the utility company's likely recovery in the months and years ahead. At 15x expected 2020 earnings and a 4.8% dividend yield, NWE looks attractive for long-term dividend growth investors.

In South Dakota, seeking

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Mid-Pandemic Business Update

I first gave my pitch for NWE as a dividend growth investment in an April 27th article here on Seeking Alpha. In that piece, I listed these points as NWE's strengths:

"...a strong, investment-grade balance sheet; a long history of stable earnings growth; below-average customer power prices; a growing portfolio of carbon-free assets; ample liquidity of $286.4 million (including $56.4 million in cash); and a growing, consistently covered dividend."

Each of these points remains true today. Since April, the liquidity situation has improved, although the percentage of that in cash has fallen. Total liquidity stood at $368.5 million at the end of June, while the company held $7.5 million in cash.

So far in the first half of 2020, revenue from NWE's electricity segment is down 6.1% year-over-year, while revenue from the gas segment is down 12.4%. Meanwhile, net income and earnings per share are both down an astounding 40%. The good news is that COVID-19-related business restrictions continue to ease in NWE's service area, giving hope that the second half of the year will be much better than the first.

The primary risk COVID-19 continues to pose is delays — in

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This article was written by

Austin Rogers profile picture
Become a “Passive Landlord” with our 8% Yielding Real Estate Portfolio.

My adult life can be broken out into three distinct phases. In my early 20s, I earned a bachelor's degree in Cinema & Media Arts (emphasis in screenwriting), but I hated working in Hollywood. Too much schmoozing and far too much traffic. So, after leaving California, I earned a Master of Fine Arts in Creative Writing from Western State Colorado University. I loved writing fiction, but it didn't pay the bills.

In my mid-20s, I became a real estate agent and gained some very valuable experience in residential and commercial real estate. But my passion for writing never went away.

Now, in my early 30s, I write for Jussi Askola's excellent marketplace service, High Yield Landlord, as well as its sister service, High Yield Investor. I also perform freelance research for a family office that owns and manages over 40 net lease commercial properties in Texas and Arkansas. Writing about finance and investing scratches that creative itch while paying the bills - the best of both worlds.

I'm a Millennial with a long-term horizon and am fascinated with the magic of compound interest and dividend growth investing. I also have an interest in macroeconomic trends, though I am but an amateur in that field.

Disclosure: I am/we are long NWE. 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.

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