Yahoo Finance ONE Gas (OGS) to Gain From Solid Investment Amid Competition
ONE Gas Inc. OGS has been gaining from regulated earnings and increased demand from residential customers. New rates, dividend hikes and systematic capital expenditures will continue to drive its performance.
ONE Gas currently carries a Zacks Rank #3 (Hold). OGS’ long-term (three to five years) earnings growth is currently pegged at 5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Tailwinds
ONE Gas plans to invest $650 million in 2022 and aims to invest $3.5 billion in the 2022-2026 period for strengthening operations. Nearly 65 to 70% of the planned capital expenditure will be directed toward the systems’ integrity and replacement projects. The company aims at replacing 750 miles of vintage pipelines over the 2022-2026 period. It has identified 4,250 miles of pipelines to be replaced post-2027 and beyond.
ONE Gas has been gaining from a steady increase in the customer base every year since 2015 and expects average annual customer growth of 1.2% in the 2022-2026 period across its service territories. The majority of the total customer base comprises residential customers. This provides stability to the company’s earnings because the loss of any customer does not have a significant impact on its financials.
ONE Gas’ stable performance will support management’s plan of rewarding shareholders through an average annual dividend increase of 6-8% in the 2022-2026 period. OGS has been raising its annual dividend for the past few years. The annual dividend of $2.48 per share for 2022 reflects an increase of 34.8% from the 2018 level and 6.9% from 2021. ONE Gas’ current dividend yield of 2.9% is better than the Zacks S&P 500 Composite’s yield of 1.7%.
Headwinds
ONE Gas operates in a highly competitive gas distribution industry and has to ensure high-quality services, which involve additional expenses. Any upward movement in the price of natural gas or a fall in the price of electricity or other energy products will make natural gas less attractive to customers and hence reduce its demand, hurting the prospects of ONE Gas. Even the implementation of strict regulations from federal, state and local governmental authorities can result in significant fines or penalties and adversely affect OGS’ operations or financial results.
Price Performance
In the past year, shares of ONE Gas have rallied 14.2% compared with the industry’s 11.8% growth.
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Systematic Investments in Infrastructure
Utilities continue to make systematic investments in their infrastructure to provide better services for their customers. These investments were directed to change old pipelines, create new storage facilities and focus on renewable assets to generate clean energy. Apart from ONE Gas, utilities like UGI Corporation UGI, MDU Resources Group Inc. MDU and South Jersey Industries Inc. SJI, each carrying a Zacks Rank #2 (Buy), among others, are making regular investments in their infrastructure.
UGI continues to make systematic capital investments to address the infrastructural need for various capital projects for increasing the safety and reliability of natural gas production and storage facilities. UGI plans to invest $500 million in fiscal 2022. UGI invested $345 million in the first six months of fiscal 2022.
MDU Resources plans to spend $770 million on capital projects in 2022. The capital program is expected to be largely funded by operating cash flows in the range of $550-$600 million. Overall, MDU Resources plans to invest $3,071 million in the 2022-2026 period. These investments in electric and natural gas infrastructure will increase the reliability of its services and enable it to serve an increasing customer base effectively.
South Jersey Industries makes consistent investments to upgrade and maintain the existing infrastructure and expand operations. South Jersey Industries invested $645 million in 2021 and estimates the capital expenditure plan for 2022, 2023 and 2024 to be $936.7 million, $798.3 million and $930.3 million, respectively.
UGI, MDU and SJI’s current dividend yield of 3.5%, 3.2% and 3.6%, respectively, is better than the Zacks S&P 500 Composite’s yield of 1.7%.
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