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ONE Gas (OGS) Rewards Shareholders With 7.4% Dividend Hike

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ONE Gas (OGS - Free Report) announced that the board of directors has approved a 7.4% increase in the quarterly dividend rate. Notably, the revised quarterly dividend will be 58 cents. The company’s new annualized dividend rate is $2.32 and current dividend yield is 3.3%, better than the Zacks S&P 500 composite’s 1.4%.

ONE Gas’ management has been annually raising the dividend rate over the past few years. The board of directors approved a dividend increase this month, leading to a 65.7% total increase in annualized dividend since 2016.

For the long term, the company’s management aims at upwardly revising the dividend rate in the range of 6-8%, subject to approval of the board of directors. This would keep ONE Gas’ dividend in the targeted payout ratio between 55% and 65%.

Can ONE Gas Sustain Dividend Hikes?

ONE Gas’ 100% regulated natural gas distribution operations will assist it to generate stable cash flow over the long term. In addition, the expanding customer base and large percentage of residential customers ensure stability in its earnings stream. Moreover, new gas rates effective in Oklahoma, Kansas and Texas will continue to boost annual revenues of the company.

It projects capital expenditure to be $3 billion in the 2021-2025 time period or in the range of $540-$640 million annually in the aforesaid time frame. The ongoing capital expenditures are directed toward pipeline integrity, extension of services to new areas, increase in system capacity, pipeline replacements, automated meter reading, government-mandated pipeline relocations, facilities, information technology assets and cybersecurity. This will allow the company to meet the demand of the expanding customer base and boost the top line.

Notably, ongoing increase in the customer base and its steady performance pave way for further increase in the annual dividend rate.

Zacks Rank & Key Picks

ONE Gas currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry include ONEOK Inc. (OKE - Free Report) , National Fuel Gas Company (NFG - Free Report) and MDU Resource Group Inc. (MDU - Free Report) . While ONEOK sports a Zacks Rank #1 (Strong Buy), the other two carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

ONEOK and MDU Resources Group have a long-term (three to five years) earnings growth rate of 4.6% and 5%, respectively. National Fuel Gas delivered an earnings surprise of 10.6% in the last four reported quarters.

The Zacks Consensus Estimate for ONEOK and MDU Resources Group’s 2021 earnings has moved up 12.8% and 11.4%, respectively, in the past 90 days. The Zacks Consensus Estimate for fiscal 2021 earnings of National Fuel Gas has moved up 2.2% in the past 90 days.

Price Movement

In the past three months, ONE Gas’ shares have underperformed the industry it belongs to.

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