Published on July 19th, 2024 by Bob Ciura
Many high dividend stocks can be found within the utility sector. Utilities typically generate steady earnings, even during recessions, which allows them to pay consistent dividends each year.
Northwest Natural Gas (NWN) is a utility stock with a high dividend yield of 4.9%.
As a result, it is part of our ‘High Dividend 50’ series, where we cover the 50 highest yielding stocks in the Sure Analysis Research Database.
You can download your free full list of all high dividend stocks with 5%+ yields (along with important financial metrics such as dividend yield and payout ratio) by clicking on the link below:
Not only that, NWN has increased its dividend for 68 consecutive years, giving it one of the longest dividend streaks in the stock market.
This article will analyze the prospects of NWN in greater detail.
Business Overview
NW Natural was founded in 1859 and has grown from a small utility to a large publicly traded utility today. The utility’s mission is to deliver natural gas to its customers in the Pacific Northwest.
The company serves nearly 3 million people through its natural gas, water, and renewable energy businesses.
NWN stock trades with a market capitalization of $1.5 billion.
Source: Investor Presentation
Northwest Natural Holding reported its financial results for the first quarter of 2024, with net income reaching $63.8 million ($1.69 per share), a decrease from $71.7 million ($2.01 per share) in the same period of 2023.
Despite this decline, the company saw notable achievements, including adding nearly 15,000 gas and water utility connections in the last 12 months, driven mainly by robust water acquisitions, and providing bill credits totaling nearly $30 million to Oregon gas customers in early 2024.
The company also experienced a significant demand for its gas system during the winter storm in January, setting a new peak day record for therms delivered.
Growth Prospects
We are forecasting an average earnings-per-share growth rate of 7.5% for the next five years as NW Natural pushes through approved pricing increases and continues to acquire customers at low-single-digit rates, as it did with the new Oregon rate case.
NW Natural also has its water utilities business that will provide a small amount of growth, but higher earnings will primarily come from customer and pricing growth while the company invests in its water business for longer-term growth.
The company’s dividend has been raised for 68 consecutive years, so the payout is of great importance to shareholders. The dividend has grown very slowly in recent years as a lack of earnings growth has capped the amount of cash NW Natural can return to shareholders.
We are forecasting dividend growth going forward to continue that trend. The payout ratio has gotten too high to allow for higher rates of growth.
Competitive Advantages
Its obvious competitive advantage is in its monopoly in its service areas. This allowed it to perform extremely well during the Great Recession as discretionary use of natural gas and water is very low.
The company also performed relatively well during the coronavirus pandemic. NW Natural remained profitable in 2020 and 2021, experiencing only a mild EPS decline in 2020.
This steady profitability, even through economic downturns, shows the strength of NWN’s business model.
At the same time, its regulatory nature prevents it from driving strong profitability growth during economic booms. Overall, while NW Natural is not a high-growth stock, it is a consistent dividend payer.
Dividend Analysis
NW Natural’s quality metrics have been very steady in the past decade. Approximately 76% percent of its total assets are encumbered by debt, which is completely acceptable for a utility.
Its interest coverage is fairly strong at 3.6x, so there are certainly no financing concerns moving forward.
Source: Investor Presentation
NWN currently pays a quarterly dividend of $0.4875 per share. The annualized dividend rate of $1.95 per share represents a current yield of 4.9%.
NWN is expected to generate earnings-per-share of $2.30 for 2024. Therefore, the dividend payout ratio for this year is projected to be 85%, which is on the high side.
The dividend has grown very slowly in recent years as a lack of earnings growth has capped the amount of cash NW Natural can return to shareholders.
We are forecasting dividend growth going forward to continue that trend. The payout ratio has gotten too high to allow for higher rates of growth.
Final Thoughts
Northwest Natural is a natural gas utility. As a result, its steady business model generates enough profits each year to pay a high dividend, and raise the payout each year.
NWN has increased its dividend for 68 consecutive years, a long period of time that has included multiple recessions. It has one of the longest dividend increase streaks in the stock market.
While it is not a high-growth dividend stock, NWN’s current payout is secure. And, the company should continue to provide modest dividend increases each year going forward.
Overall, NWN is an attractive dividend stock for income investors.
If you are interested in finding high-quality dividend growth stocks and/or other high-yield securities and income securities, the following Sure Dividend resources will be useful:
High-Yield Individual Security Research
- 20 Highest Yielding Monthly Dividend Stocks
- 10 Super High Dividend REITs
- 5 Highest Yielding Royalty Trusts
Other Sure Dividend Resources
- Dividend Kings: 50+ years of rising dividends
- Dividend Champions: 25+ years of rising dividends
- Dividend Aristocrats: 25+ years of rising dividends and in the S&P 500
- Dividend Achievers: 10+ years of rising dividends and in the NASDAQ
- Monthly Dividend Stocks: Individual securities that pay out every month
- MLPs: List of MLPs and more
- REITs: List of REITs and more
- BDCs: List of BDCs and more