Dividend Kings In Focus: Northwest Pure Fuel

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.

Nevertheless, not all utility shares are created equal on this sense.

There are six utility shares on the distinguished record of Dividend Kings, a bunch of shares with at the least 50 consecutive years of dividend will increase. You may see all 50 Dividend Kings right here.

You too can obtain an Excel spreadsheet with the complete record of Dividend Kings (plus vital metrics comparable to 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 record of Dividend Kings. It has elevated its dividend for 67 consecutive years, giving it one of many longest streaks out there.

Beneath, 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 offered gasoline service to a handful of shoppers to a really profitable regional utility with pursuits that now embrace water and wastewater, which have been bought in current acquisitions.

The corporate’s places served are proven within the picture beneath.

Supply: Investor Presentation

Northwest offers gasoline service to 2.5 million clients in ~140 communities in Oregon and Washington, serving greater than 795,000 connections. It additionally owns and operates ~35 billion cubic toes 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% 12 months–over–12 months to about $238 million. Nevertheless, Net earnings 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 charge.

Within the first six months of 2023, Northwest additionally invested almost $151 million of their utility methods for higher reliability and resiliency.

In the meantime, the management staff reaffirmed its steerage for 2023, with earnings–per–share anticipated to come back in at between $2.55 and $2.75.

Subsequent, we’ll assess Northwest’s future progress prospects.

Progress Prospects

Northwest has had problem rising earnings-per-share prior to now decade, though the corporate acquired clients pretty steadily throughout that point.

The corporate has struggled with charge instances 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 development, each of which have helped transfer the needle over time by low single digits.

We consider the demographics of Northwest’s served communities help continued buyer progress, so this ought to be a tailwind for income and earnings.

Beneath, 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 rely by at the least 1.5% yearly, in keeping with historic efficiency, and charge base progress of 5% to 7%.

We consider buyer progress will probably be regular, however Northwest’s historical past on charge instances has us a bit extra cautious on charge 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 similar to another utility; it has a digital monopoly in its service space. The utility enterprise mannequin is vastly totally different from nearly another 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 earnings from 12 months to 12 months, even throughout recessions. Roughly 88% of the corporate’s internet earnings final 12 months was derived from the pure gasoline utility enterprise.

Moreover, virtually two-thirds of Northwest’s clients are residential. We consider Northwest’s pretty heavy focus on residential clients will proceed to serve it nicely throughout future recessions.

Beneath, 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% improve)
2009 earnings-per-share: $1.60 (5.3% lower)
2010 earnings-per-share: $1.68 (5.0% improve)

Northwest was in a position to not solely keep its earnings throughout a deep and lengthy recession, but it surely produced at the least 5% earnings-per-share progress annually earlier than, throughout, and following the Nice Recession.

Whereas utilities can afford to distribute a excessive degree of earnings within the type of dividends, given their predictable earnings base, buyers ought to notice that will increase are prone to be small. The latest improve was simply 0.5%, illustrating this level.

We consider the present dividend is secure for the foreseeable future, however we notice that dividend progress will possible be troublesome to realize.

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 immediately’s worth, Northwest trades for 14.3 occasions this 12 months’s earnings, which is beneath our truthful worth estimate of 17 occasions earnings. We, subsequently, anticipate a 2.2% annual enhance to complete 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 complete annual returns of 13.6% shifting ahead.

A mid-to-high single-digit complete return potential earns Northwest a purchase ranking.

Remaining Ideas

Whereas Northwest has some challenges to face, we consider its strategic course of specializing in constructing out its residential enterprise will result in optimistic progress. Regular buyer progress is engaging and may assist at the least buoy earnings at present ranges, if not produce a small quantity of EPS progress annually.

With the share worth decline prior to now 12 months, Northwest affords an improved worth proposition. With complete returns projected to roughly 13.6% yearly, Northwest will be confirmed a fruitful funding for conservative income-oriented buyers.

The next articles include shares with very lengthy dividend or company histories, ripe for choice for dividend progress buyers:

The Excessive Yield Dividend Kings Checklist is comprised of the 20 Dividend Kings with the very best present yields.
The Blue Chip Shares Checklist: shares that qualify as Dividend Achievers, Dividend Aristocrats, and/or Dividend Kings
The Excessive Dividend Shares Checklist: shares that enchantment to buyers within the highest yields of 5% or extra.
The Month-to-month Dividend Shares Checklist: shares that pay dividends each month, for 12 dividend funds per 12 months.
The Dividend Champions Checklist: 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 further necessities like being in The S&P 500.