Dividend Kings In Focus: Northwest Pure Fuel – Positive Dividend

Up to date on October thirtieth, 2024 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.

Six utility shares are on the distinguished record of Dividend Kings, a bunch of shares with not less than 50 consecutive years of dividend will increase. You may see all 53 Dividend Kings right here.

You may as well obtain an Excel spreadsheet with the total record of Dividend Kings (plus necessary metrics akin to price-to-earnings ratios and dividend yields) by clicking on the hyperlink under:

Northwest Pure Holdings (NWN) is among the many six utility shares on the record of Dividend Kings. It has elevated its dividend for 68 consecutive years, giving it one of many longest streaks out there.

Beneath, we’ll assess Northwest’s enterprise and development prospects and determine whether or not to purchase, promote, or maintain.

Enterprise Overview

Northwest was based over 160 years in the past as a pure fuel utility in Portland, Oregon.

It has grown from a really small, native utility that supplied fuel service to a handful of consumers 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 under.

Supply: Investor Presentation

Northwest gives fuel 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 fuel storage capability.

Lastly, its current transfer into water has grown to over 33,000 connections, serving over 80,000 individuals. As soon as the corporate’s pending acquisitions shut, its water connections will develop to 60,000 connections, able to serve roughly 145,000 individuals.

The corporate reported a internet lack of $2.8 million, or $0.07 per share, for the second quarter of 2024, in comparison with internet earnings of $1.2 million, or $0.03 per share, in the identical interval of 2023. For the primary half of 2024, internet earnings totaled $61.0 million ($1.60 per share), down from $72.9 million ($2.03 per share) the prior yr, primarily as a result of regulatory lag from elevated depreciation and pension bills. Regardless of these challenges, the corporate added practically 16,000 new utility connections, reflecting a 1.8% development charge. Moreover, NW Pure signed an acquisition settlement with Puttman and Infrastructure Capital Holdings (ICH), which is predicted so as to add round 4,200 water clients and help additional growth alternatives.

Within the second quarter, NW Pure’s Pure Fuel Distribution section confronted a $2.7 million internet earnings lower, attributed to regulatory lag from larger depreciation, pension, and tax bills. In the meantime, operations and upkeep prices had been decreased by $3.5 million, aided by payroll and labor financial savings. Nonetheless, the primary half of the yr additionally noticed opposed impacts from unseasonably heat climate and elevated pension prices, additional compounded by decrease curiosity earnings. The corporate’s different enterprise actions, akin to interstate storage and third-party asset administration, skilled a $1.3 million decline in internet earnings as a result of a earlier yr’s settlement acquire.

NW Pure reaffirmed its 2024 earnings steerage within the vary of $2.20 to $2.40 per share, anticipating 4%-6% long-term development via 2027 regardless of short-term regulatory lag and inflationary pressures. For 2024, the corporate anticipates a third-quarter loss and a rebound within the fourth quarter. NW Pure’s board additionally declared a quarterly dividend of $0.4875 per share, aligning with an annual dividend charge of $1.95 per share.

Development Prospects

Northwest has had issue rising earnings-per-share previously decade, although the corporate acquired clients pretty steadily throughout that point.

The corporate has struggled with charge circumstances in a few of its localities, though it has not too long ago skilled extra success elevating costs in Oregon. Since Northwest is a regulated utility, it should ask for pricing will increase from native authorities.

Northwest’s buyer development has been fairly robust over the previous decade. It combines 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 development, so this ought to be a tailwind for income and earnings.

Beneath, Northwest has outlined what it sees as development targets for the subsequent 5 years.

Supply: Investor Presentation

The corporate believes it might develop earnings-per-share at 4% to six% yearly whereas growing its dividend.

It plans to realize this by growing its buyer rely by not less than 1.5% yearly, per historic efficiency, and growing its charge base by 5% to 7%.

We consider buyer development can be regular, however Northwest’s historical past on charge circumstances has us a bit extra cautious on charge development.

Accordingly, we assess Northwest’s long-term development potential at 6.5% yearly within the coming years.

Aggressive Benefits & Recession Efficiency

Northwest’s aggressive benefit is much like that of every other utility; it has a digital monopoly in its service space. Nonetheless, the utility enterprise mannequin is vastly completely different from that of nearly every other sort 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 yr to yr, even throughout recessions. Roughly 88% of the corporate’s internet earnings final yr was derived from the pure fuel 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 effectively 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 keep its earnings throughout a deep and lengthy recession and produced not less than 5% earnings-per-share development every year 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 be aware that will increase will doubtless be small. The latest improve was simply 0.5%, illustrating this level.

We consider the present dividend is protected for the foreseeable future, however we be aware that dividend development will doubtless be tough to realize.

Valuation & Anticipated Returns

Northwest inventory has declined considerably from its 52-week excessive, restoring it to an interesting valuation and dividend yield.

At at present’s value, Northwest trades for 17.3 occasions this yr’s earnings, which is larger than our honest worth estimate of 15 occasions earnings. Subsequently, we anticipate a -2.8% annual lower in complete returns from the decreasing P/E a number of.

The present dividend yield is 4.9%, which could be very excessive by Northwest’s personal historic requirements. Combining it with the valuation and anticipated EPS development, we forecast complete annual returns of 8.6% transferring ahead.

A mid-to-high single-digit complete return potential earns Northwest a maintain score.

Closing Ideas

Whereas Northwest has some challenges to face, we consider its strategic route of specializing in constructing out its residential enterprise will result in optimistic development. Regular buyer development is engaging and will assist not less than buoy earnings at present ranges, if not produce a small quantity of EPS development every year.

Northwest’s share value improve previously yr doesn’t enhance its worth proposition. With complete returns projected to roughly 8.6% yearly, Northwest could be 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 development buyers:

The Excessive Yield Dividend Kings Record is comprised of the 20 Dividend Kings with the very best present yields.
The Blue Chip Shares Record: shares that qualify as Dividend Achievers, Dividend Aristocrats, and/or Dividend Kings
The Excessive Dividend Shares Record: shares that enchantment to buyers within the highest yields of 5% or extra.
The Month-to-month Dividend Shares Record: shares that pay dividends each month, for 12 dividend funds per yr.
The Dividend Champions Record: shares which have elevated their dividends for 25+ consecutive years.Be aware: Not all Dividend Champions are Dividend Aristocrats as a result of Dividend Aristocrats have further necessities like being in The S&P 500.