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1 Buy-Rated Dividend King for Value Investors
After a breakout performance for many stocks in 2023, finding good value investments can take a little bit of digging. However, some key areas of the market have underperformed this year - dividend stocks, oil and gas stocks, and utility stocks, to name a few. And for investors seeking steady income and value, there's one dividend king at the intersection of all three that's worth considering around current levels.
National Fuel Gas Company, the Energy Dividend King
National Fuel Gas Company (NFG) is an integrated natural gas energy company, handling everything from Exploration & Production, to Pipeline & Storage, to Utility & Marketing. NFG also holds the esteemed title of Dividend King – a badge of honor for companies that consistently up their dividend payout for 50 years or more.
Specifically, NFG just cranked up its dividend streak to 53 years. While there are a handful of other utilities stocks that have achieved Dividend King status, NFG is the only real diversified energy play, with operations running the gamut from upstream to downstream.
That said, the current dividend yield of 3.98% looks generous even stacked up to the sector median for utilities stocks, which are generally favored for their yields. Plus, with a reasonable payout ratio of 37%, there's room for more dividend boosts down the road.
Is NFG Stock a Good Value Buy?
Higher interest rates, lower energy prices, and rising bond yields have all pressured NFG in 2023, and the stock is currently trading 31% below its 2022 highs.
But thanks to this downturn on the charts, NFG's current valuation is relatively attractive. NFG is now priced at 9.11 times forward earnings - a discount to both the sector median of 17.28 and the stock's own 5-year average of 12.71.
Likewise, the stock's price/sales multiple of 1.87 is attractive compared to both its peers and its own historical averages.
NFG Misses on Q4 Earnings
NFG just dropped its earnings results for the fourth quarter of fiscal 2023. The company raked in a GAAP net income of $73.7 million, or $0.80 per share, compared to $158.1 million, or $1.71 per share, in the previous year. Adjusted operating results for the quarter were $72.2 million, or $0.78 per share, compared to $109.3 million, or $1.01 per share, in the prior year.
EPS fell short of expectations, as did revenue - though it's worth pointing out, per a recent note from Fitch, that nearly half of NFG's EBITDA comes from stable and highly regulated pipeline and utility operations, which offers some resilience through economic cycles.
Analysts expect National Fuel Gas to improve its EPS performance in the years ahead, with the consensus calling for 7.93% bottom-line gains in fiscal 2024, followed by a 19% increase in EPS to $6.64 for FY 2025.
NFG adjusted its own EPS guidance for FY 2024 to a range between $5.40 and $5.90, which would indicate a 9% year-over-year gain at the midpoint.
For the full fiscal year 2023, free cash flow arrived at $275 million.
"In addition to continuing our long history of returning significant and increasing amounts of capital to shareholders through our dividend, the free cash flow we've generated over the past two years has funded $150 million of bolt-on acquisitions in our Eastern development area, while at the same time contributing to a reduction in our absolute levels of debt," said CEO Dave Bauer on the Q4 conference call.
What Do Analysts Expect for NFG?
Six analysts have given NFG a consensus rating of “Moderate Buy,” with 2 shouting "strong buy," 3 saying "hold," and 1 suggesting a "moderate sell."
The mean target price from this group is a cool $60.50, implying expected 21% upside from current levels.
NFG Looks Like a Dividend King to Buy Right Now
Valuation metrics indicate that NFG is a steal at current levels, and the company offers solid growth potential from its E&P operations alongside its impressive history of yield payments. All things considered, NFG looks like an appealing option for value investors at current levels, providing a chance to get in on a top-notch diversified energy business with an impressive 53-year track record of consecutive dividend growth.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
