Up to date on October fifth, 2021 by Bob Ciura
In 2021, Nationwide Gas Gasoline (NFG) raised its dividend for the 51st consecutive yr. That places the corporate among the many elite Dividend Kings, a small group of shares which have elevated their payouts for at the very least 50 consecutive years. You possibly can see the total checklist of all 32 Dividend Kings right here.
We have now created a full checklist of all 32 Dividend Kings, together with vital monetary metrics corresponding to price-to-earnings ratios and dividend yields. You possibly can entry the spreadsheet by clicking on the hyperlink under:
Nationwide Gas Gasoline has remained a comparatively small firm, buying and selling at a market capitalization of $5 billion. Nevertheless, a small market cap just isn’t a damaging characteristic when investing; fairly the opposite.
Regardless of its small dimension, Nationwide Gas Gasoline has promising long-term progress prospects and a pretty valuation. As well as, its 3.3% dividend yield is way greater than the broader market yield of 1.4%, and there’s room for extra dividend raises down the highway.
Nationwide Gas Gasoline is a diversified and vertically built-in firm that operates in 4 segments: Exploration & Manufacturing, Pipeline & Storage, Gathering and Utility. The upstream section (exploration & manufacturing) is by far crucial one, because it generates 44% of the EBITDA of the corporate.
The midstream division (pipeline & storage and gathering) generates 39% of EBITDA whereas the downstream section (utility) generates the remaining 17% of EBITDA.
Whereas Nationwide Gas Gasoline appears to be a pure commodity inventory on the floor, with all of the disadvantages associated to the boom-and-bust cycles of commodity producers, the corporate has a superior enterprise mannequin when in comparison with commodity producers. Because of its vertically built-in enterprise mannequin, it enjoys important synergies.
Supply: Investor Presentation
Its midstream and downstream companies present a robust buffer when the value of pure fuel decreases. Furthermore, the corporate enjoys greater returns on its investments, as each its upstream and midstream divisions profit from its investments in manufacturing progress initiatives.
In early August, National Gas Gasoline reported (8/5/21) monetary outcomes for the third quarter of fiscal 2021. The corporate grew its manufacturing by a formidable 48% over last yr’s quarter, primarily because of the acquisition of Appalachian property. As well as, the common price of pure fuel rose 15%, from $1.92 in final yr’s quarter to $2.20.
Consequently, adjusted earnings–per–share grew 63%, from $0.57 to $0.93, and exceeded analysts’ consensus by $0.11. This confirms Nationwide Gas Gasoline’ superior enterprise mannequin in comparison with different commodity producers.
Nationwide Gas Gasoline pursues progress by rising its pure fuel manufacturing and increasing its pipeline community. Nevertheless, it has grown its earnings per share at a mean annual charge of solely 2.9% since 2010. It is a stern reminder of the sensitivity of the earnings of the corporate to the prevailing costs of pure fuel.
Alternatively, the corporate has promising progress prospects forward.
Supply: Investor Presentation
A significant progress driver will likely be a extra favorable enterprise atmosphere, as the value of pure fuel has loads of potential upside and restricted draw back in the long term from its present suppressed stage.
Because of a steep enhance in output, firm management raised its steering for a fourth consecutive quarter because of favorable commodity costs. It now expects earnings–per–share of $4.05–$4.15 (vs. earlier steering of $3.85–$4.05), for 40% progress on the mid–level.
It additionally initiated steering for earnings–per–share of $4.40–$4.80 in fiscal 2022, implying 12% progress on the mid–level, because of an improved outlook for pure fuel costs and the completion of the FM100 growth mission.
General, we count on Nationwide Gas Gasoline to develop its earnings per share by about 4.0% per yr on common over the following 5 years, primarily because of manufacturing progress and considerably extra favorable costs of pure fuel sooner or later.
Aggressive Benefits & Recession Efficiency
As talked about above, the upstream section generates over 40% of its whole EBITDA, with pure fuel comprising 90% of the whole output. It’s evident that the corporate is extremely delicate to the value of pure fuel. This sensitivity was obvious in 2015 and 2016, when the value of pure fuel collapsed and the corporate posted hefty losses.
Alternatively, because of its vertically built-in enterprise mannequin, Nationwide Gas Gasoline is extra resilient to downturns than most oil and fuel producers, as its midstream and utility companies present a robust buffer throughout downturns.
The superior enterprise mannequin of Nationwide Gas Gasoline helps clarify its admirable dividend progress file. The corporate has paid uninterrupted dividends for practically 120 consecutive years and has raised its dividend for 51 consecutive years. That is a formidable achievement for a commodity producer, as commodities are notorious for his or her excessive cyclicality, which leads to dramatic boom-and-bust cycles.
Given the wholesome payout ratio of 44% (based mostly on anticipated 2021 adjusted EPS) and the first rate stability sheet of the corporate, the dividend will be thought-about protected for the foreseeable future. We count on Nationwide Gas Gasoline to proceed elevating its dividend for a lot of extra years.
Valuation & Anticipated Returns
Nationwide Gas Gasoline is at the moment buying and selling at 13.7 occasions its anticipated earnings of $4.05 per share this yr. This earnings a number of is way decrease than the common price-to-earnings ratio of 17.5 over the past decade. Our truthful worth estimate for NFG inventory is a P/E of 15. If the P/E a number of expands from 13.7 to fifteen by 2026, it could raise annual returns by 1.8% per yr over the following 5 years.
Given 4% anticipated earnings-per-share progress, the three.3% dividend and a 1.8% annualized growth of the price-to-earnings ratio, we count on Nationwide Gas Gasoline to supply a 9.1% common annual return over the following 5 years. This makes the inventory a purchase in our view.
Nationwide Gas Gasoline is extremely delicate to the gyrations of the value of pure fuel. Alternatively, its midstream and utility segments present a robust assist to its monetary outcomes throughout downturns.
General, the midstream and utility segments present dependable money flows whereas the upstream section presents important progress potential because of sturdy manufacturing progress and a possible enchancment within the value of pure fuel off its present suppressed stage, which has been brought on by the pandemic.
As well as, Nationwide Gas Gasoline inventory is undervalued proper now. Because of its promising progress prospects, its 3.3% dividend, and its low valuation, we imagine the inventory is prone to provide engaging returns going ahead.
Thanks for studying this text. Please ship any suggestions, corrections, or inquiries to firstname.lastname@example.org.