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Southwest Gas (SWX) Gains on Investments & Customer Addition

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Southwest Gas Holdings Inc. (SWX - Free Report) has been gaining from strategic investment plans and consistent customer additions to its natural gas segment. Regular dividend payouts and the acquisition of Dominion Energy Questar Pipelines are likely to drive its performance over the long run.

Southwest Gas’ long-term (three to five years) earnings growth is currently pegged at 5%. SWX currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Tailwinds

Southwest Gas invested $715.6 million in 2021 and expects to make investments in the range of $2.5-$3.5 billion for the 2022-2026 period. The planned expenditure of the nearly $650-$700 million range is expected to be incurred in 2022.

The acquisition of Dominion Energy Questar Pipelines, LLC, which was rebranded under the name of MountainWest in April 2022, will further diversify SWX’s business, including the essential Rocky Mountain energy hub with more than 2,000 miles of highly contracted, FERC-regulated interstate natural gas pipelines in Utah, Wyoming and Colorado. This deal is likely to be accretive to earnings per share (EPS) in 2022.

Southwest Gas’ natural gas operations have a diversified and growing customer base. As of Mar 31, 2022, it had 2,171,000 residential, commercial, industrial and other natural gas customers. In 2021, the company added 37,000 customers, and the trend is expected to continue in 2022.

Southwest Gas’ consistent performance enabled it to reward shareholders through annual dividend rate hikes and share repurchases. The utility has been paying dividends since 1956 and has raised its dividend consecutively since 2007. In May 2022, SWX’s board of directors approved an increase in the quarterly dividend rate to 62 cents per share or $2.48 annually, up 4.2% from the previous quarterly rate of 57 cents per share. Southwest Gas’ current dividend yield of 2.8% is better than the Zacks S&P 500 composite’s 1.7%.

Headwinds

Southwest Gas’ dependence on the interstate pipeline transportation capacity to meet the demand of customers and any disruption in pipeline services might adversely impact cash flow and earnings. In 2021, more than half of the revenues from utility infrastructure services were generated from nine customers. Hence, a loss of any one or more of such revenue generating Centuri customers might affect its financial performance. Southwest Gas’ operations are also exposed to cyber-security risks, thereby maximizing the chances of misusing confidential data.

Price Performance

In the past three months, shares of SWX have rallied 11.1% against the industry’s decline of 5.0%.

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Stocks to Consider

Some better-ranked stocks from the same sector are MDU Resources (MDU - Free Report) , American Electric Power (AEP - Free Report) and Eversource Energy (ES - Free Report) , each carrying a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for the 2022 EPS of MDU Resources, American Electric Power and Eversource Energy has moved up 9.6%, 5.3% and 6.5% year over year, respectively.

The long-term earnings growth of MDU Resources, American Electric Power and Eversource Energy is projected at 6.9%, 6.2% and 6.2%, respectively.

MDU, AEP and ES’ current dividend yield of 3.1%, 3.3% and 3.1% is better than the Zacks S&P 500 composite’s 1.7%.

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