5 Gas Utilities with the Highest Dividend Yields
By: Ned Piplovic,
Financial markets’ current volatility and uncertainty is making some investors consider defensive alternatives to their growth stocks. Traditionally, the Utilities sector – especially equities that pay highest dividend yields – has been considered a relatively safe bet in uncertain and volatile markets.
Traditionally, the Utilities sector – especially equities that pay the highest dividend yields – has been considered a relatively safe bet in uncertain and volatile markets. Even if the share prices continue to falter, the high dividend yields offer investors steady income distributions that can offset some of the losses in anticipation of share-price recovery.
The average dividend yield of the overall Utilities sector is 2.33%, which is not high enough to provide the income necessary for a successful execution of this investment strategy. However, with a 3.16% average yield, the Gas Utilities segment offers the highest dividend yields within the Utilities sector.
The five securities with the highest dividend yields in this segment offer payouts in excess of 8% and a simple average yield of nearly 11%. The list below presents the top five equities with the highest dividend yields in descending order by their current yield regardless of other factors, such as share price trend or total returns.
5 Gas Utilities with Highest Dividend Yields: #5
Western Gas Equity Partners L.P. (NYSE:WGP)
After peaking at $42.51 on January 23, 2018, the share price of WGP dropped more than 33% before reaching its 52-week low of $28.14 on November 20, 2018. Since the November low, the share price rose 4.4% to close less than 8% lower than it was one year earlier.
The company has hiked its dividend payout amount every quarter since it started paying dividends in February 2013. Over the past 23 consecutive quarters the dividend payout increased more than 16-fold, which is equivalent to an average growth rate of 13% per quarter – or nearly 31% per year annualized over the past five years.
The current $0.595 quarterly payout converts to a $2.38 annualized amount and yields 8.1%, which is more than 76% above the 4.6% five-year average yield. Additionally, the current 8.1% yield is nearly 250% above the 2.33% average yield of the Utilities sector as well as 150% above the 3.16% average yield of all companies in the Gas Utilities industry segment and nearly 60% higher than the 5.12% yield average of the segment’s only dividend-paying companies.
5 Gas Utilities with Highest Dividend Yields: #4
Targa Resources, Inc. (NYSE:TRGP)
The company’s share price rose more than 26% over the first 10 month of the trailing year and reached its 52-week high of $58.51 on October 30, 2018. However, because of the overall market pullback, as well as falling natural gas and crude oil prices, the share price fell and closed on December 11, 2018, at its 52-week low of $42.61.
Targa Resources distributes its annual $3.64 dividend in quarterly distributions of $0.91 per period. The annualized payout corresponds to an 8.5% dividend yield, which is 16% higher than the company’s own 7.9% five-year average yield. After initiating dividend payouts in 2011, the company hiked its payout for the 18 subsequent quarters. Despite no dividend hikes over the past two years, the company still managed to enhance its total annual dividend nearly four times since 2011, which corresponds to a 21.5% average annual growth rate.
Even with the share price at its 52-week low, the company delivered a total return of nearly 3% over the past 12 months and a total return of nearly 68% over the past three years.
5 Gas Utilities with Highest Dividend Yields: #3
American Midstream Partners L.P. (NYSE:AMID)
The company’s share price is currently down nearly 70% from the onset of the trailing 12 months. After a brief rise to its 52-week high in late January 2018, the share price slowly deteriorated towards its 52-week low of $4.61 on December 11, 2018.
However, the company divested its marine products terminalling business in August 2018 and plans to use the approximately $210 million in cash proceeds from the transaction to reduce debt and enhance liquidity. These transactions will contribute significantly to strengthening the partnership’s balance sheet and execution of the company’s new capital allocation strategy.
The current quarterly dividend payout of $0.103 converts to a $0.412 annualized amount and an 8.9% forward yield. This current yield is nearly four-fold above the 2.33% average yield of the entire Utilities sector, almost triple the 3.16% average yield of the Gas Utilities segment and 75% higher than the simple average yield of the segment’s only dividend-paying equities.
5 Gas Utilities with Highest Dividend Yields: #2
Suburban Propane L.P. (NYSE:SPH)
Suburban Propane L.P. – a gas distribution company in Northern New Jersey and Southern New York State – saw its share price hold at a relatively steady level over the past two years before dropping 9% in the first 10 days of December 2018. The share spiked initially more than 10% and reached its 52-week high of $26.53 on January 4, 2018. However, after the sharp spike, the share price gave back all those gains by mid-March 2018 and continued to trade around the $23 price level until the end of November – just before the 9% December drop. The share price closed on December 11, 2018, at its 52-week low of $21.24.
The company’s current $0.60 quarterly payout is equal to the dividend payout from the same period last year. This quarterly payout corresponds to a $2.40 annualized distribution and yields 11.3%, which is just slightly below the company’s own 11.6% five-year average.
Prior to the December drop, the combined share price and total dividend income trended towards an 8% total return for the year. However, the current short-term share price drop erased those gains and turned that gain into a 0.5% total loss for the trailing 12 months. However, just a minor share price uptrend would move the total returns back into positive territory and towards double-digit percentage return levels, like the 20% total return over the past five years.
5 Gas Utilities with Highest Dividend Yields: #1
Summit Midstream Partners L.P. (NYSE:SMLP)
The Summit Midstream Partners’ share price experienced two significant pullbacks over the past 12 months and declined more than 37% over the past year. After an initial 10% gain at the beginning of the trailing 12 months, the company’s share price peaked at $22.60 on February 1, 2018, before reversing trend and crashing more than 40% over the subsequent 60 days. The share price recovered some of those losses by October but declined again with overall market trends and hit its 52-week low $12.01 on November 28, 2018. However, the share price gained nearly 7% from the November low and closed at $12.84 on December 11, 2018.
The company’s current $0.575 quarterly payout converts to a $2.30 annualized payout and yields 17.9%, which is 85% higher than SMLP’s own 9.7% five-year average yield. Additionally, SMLP’s current 17.9% yield is approximately 60% above the 11.3% yield of its nearest peer as well as nearly eight-fold higher than the 2.33% average yield of the overall Utilities sector. Furthermore, the current yield is also nearly 480% higher than the 3.16% yield average of the Gas Utilities industry segment and 250% above the 5.12% average of the segment’s only dividend-paying companies.
The firm has raised its annual dividend for the first three years since initiating dividend distributions in 2013. Despite missing dividend hikes in the last two years, the company still enhanced its annual dividend 33% over the past five years which corresponds to an average dividend growth rate of nearly 6% per year since 2013.
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Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.