Up to date on October 1st, 2023 by Felix Martinez
Utility shares are sometimes related to lengthy histories of paying dividends to shareholders. Their comparatively predictable earnings and recession resistance mix to make growing dividends considerably simpler over the long run than a extremely cyclical enterprise.
Nonetheless, not all utility shares are created equal on this sense.
There are six utility shares on the distinguished listing of Dividend Kings, a bunch of shares with not less than 50 consecutive years of dividend will increase. You’ll be able to see all 50 Dividend Kings right here.
You can too obtain an Excel spreadsheet with the total listing of Dividend Kings (plus necessary metrics resembling price-to-earnings ratios and dividend yields) by clicking on the hyperlink beneath:
Northwest Pure Holdings (NWN) is among the many six utility shares on the listing of Dividend Kings. It has elevated its dividend for 67 consecutive years, giving it one of many longest streaks available in the market.
Under, we’ll assess Northwest’s enterprise, progress prospects, and whether or not to purchase, promote, or maintain.
Enterprise Overview
Northwest was based over 160 years in the past as a pure gasoline utility in Portland, Oregon.
It has grown from a really small, native utility that supplied gasoline service to a handful of shoppers to a really profitable regional utility with pursuits that now embrace water and wastewater, which had been bought in current acquisitions.
The corporate’s places served are proven within the picture beneath.
Supply: Investor Presentation
Northwest gives gasoline service to 2.5 million prospects in ~140 communities in Oregon and Washington, serving greater than 795,000 connections. It additionally owns and operates ~35 billion cubic ft of underground gasoline storage capability.
Lastly, its pretty current transfer into water has grown to over 33,000 connections, serving greater than 80,000 individuals. As soon as the corporate’s pending acquisitions shut, the corporate’s water connections will develop to 60,000 connections, able to serve roughly 145,000 individuals.
Northwest reported Q2 outcomes on Aug. third, 2023. Income grew by 22% yr–over–yr to about $238 million. Nonetheless, Net revenue was down $0.03 per share in comparison with $0.05 within the prior-year interval. The firm additionally reported including 6,400 pure gas meters over the previous 12 months, equating to a 0.8% progress price.
Within the first six months of 2023, Northwest additionally invested almost $151 million of their utility techniques for better reliability and resiliency.
In the meantime, the management crew reaffirmed its steerage for 2023, with earnings–per–share anticipated to return in at between $2.55 and $2.75.
Subsequent, we’ll assess Northwest’s future progress prospects.
Progress Prospects
Northwest has had issue rising earnings-per-share prior to now decade, regardless that the corporate acquired prospects pretty steadily throughout that point.
The corporate has struggled with price circumstances in a few of its localities, though it skilled newer success in Oregon with elevating costs. Since Northwest is a regulated utility, it should ask for pricing will increase from native authorities.
Northwest’s buyer progress has been fairly robust over the previous decade. It has a mixture of conversions and new building, each of which have helped transfer the needle over time by low single digits.
We imagine the demographics of Northwest’s served communities help continued buyer progress, so this must be a tailwind for income and earnings.
Under, Northwest has outlined what it sees as progress targets for the subsequent 5 years.
Supply: Investor Presentation
The corporate believes it may possibly develop earnings-per-share at 4% to six% yearly whereas growing its dividend.
It plans to get there by rising its buyer depend by not less than 1.5% yearly, in keeping with historic efficiency, and price base progress of 5% to 7%.
We imagine buyer progress can be regular, however Northwest’s historical past on price circumstances has us a bit extra cautious on price progress.
Accordingly, we assess Northwest’s long-term progress potential at 1.9% yearly within the coming years.
Aggressive Benefits & Recession Efficiency
Northwest’s aggressive benefit is very like some other utility; it has a digital monopoly in its service space. The utility enterprise mannequin is vastly totally different from nearly some other kind of enterprise because it requires regulatory approval for issues like CAPEX and pricing will increase.
In return, the corporate generates a extremely predictable and constant stream of income from yr to yr, even throughout recessions. Roughly 88% of the corporate’s web revenue final yr was derived from the pure gasoline utility enterprise.
Moreover, virtually two-thirds of Northwest’s prospects are residential. We imagine Northwest’s pretty heavy focus on residential prospects will proceed to serve it nicely throughout future recessions.
Under, we now have Northwest’s earning-per-share earlier than, throughout, and after the Nice Recession:
2007 earnings-per-share: $1.44
2008 earnings-per-share: $1.52 (5.6% enhance)
2009 earnings-per-share: $1.60 (5.3% lower)
2010 earnings-per-share: $1.68 (5.0% enhance)
Northwest was capable of not solely keep its earnings throughout a deep and lengthy recession, nevertheless it produced not less than 5% earnings-per-share progress every year earlier than, throughout, and following the Nice Recession.
Whereas utilities can afford to distribute a excessive degree of income within the type of dividends, given their predictable earnings base, traders ought to be aware that will increase are more likely to be small. The newest enhance was simply 0.5%, illustrating this level.
We imagine the present dividend is protected for the foreseeable future, however we be aware that dividend progress will seemingly be troublesome to attain.
Valuation & Anticipated Returns
Northwest inventory has declined considerably from its 52-week excessive, bringing the inventory again to an interesting valuation and dividend yield.
At as we speak’s value, Northwest trades for 14.3 instances this yr’s earnings, which is beneath our truthful worth estimate of 17 instances earnings. We, subsequently, anticipate a 2.2% annual increase to whole returns from the rising P/E a number of.
The present dividend yield is 5.1%, which may be very excessive by Northwest’s personal historic requirements. Combining it with the valuation and anticipated EPS progress, we forecast whole annual returns of 13.6% transferring ahead.
A mid-to-high single-digit whole return potential earns Northwest a purchase ranking.
Closing Ideas
Whereas Northwest has some challenges to face, we imagine its strategic route of specializing in constructing out its residential enterprise will result in optimistic progress. Regular buyer progress is enticing and may assist not less than buoy earnings at present ranges, if not produce a small quantity of EPS progress every year.
With the share value decline prior to now yr, Northwest provides an improved worth proposition. With whole returns projected to roughly 13.6% yearly, Northwest will be confirmed a fruitful funding for conservative income-oriented traders.
The next articles comprise shares with very lengthy dividend or company histories, ripe for choice for dividend progress traders:
The Excessive Yield Dividend Kings Listing is comprised of the 20 Dividend Kings with the very best present yields.
The Blue Chip Shares Listing: shares that qualify as Dividend Achievers, Dividend Aristocrats, and/or Dividend Kings
The Excessive Dividend Shares Listing: shares that enchantment to traders within the highest yields of 5% or extra.
The Month-to-month Dividend Shares Listing: shares that pay dividends each month, for 12 dividend funds per yr.
The Dividend Champions Listing: shares which have elevated their dividends for 25+ consecutive years.Observe: Not all Dividend Champions are Dividend Aristocrats as a result of Dividend Aristocrats have extra necessities like being in The S&P 500.
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