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.
5 Gas Utilities with Highest Dividend Yields: #5
Western Midstream Partners LP (NYSE:WES)
Dividend Yield: 8.4%
Western Midstream is a US based company primarily focused on the ownership and operation of midstream energy assets. It mines, processes, compresses, treats, and moves all of natural gas, condensate, NGLs and crude oil. The majority of its assets are distributed between the Rocky Mountains and the Mid-Continent, surrounding Kansas and Oklahoma.
The company has hiked its dividend payout amount every quarter since it started paying dividends in February 2013. These hikes leveled off in the second quarter of 2020 when it dropped to $0.31 and maintained this dividend since. Its quarterly payout corresponds to an annual dividend rate of $1.24, yielding 8.4%. Pre-COVID, the company was paying quarterly dividends of $0.62 through the first quarter of 2020.
Investors fell just short of breaking even for the trailing 12 months, taking a loss of 0.4% in the company’s total returns. 2021 has been a strong year so far for Western Midstream, however, as its YTD returns are already nearing double-digits at 7.1% without adjusting for dividend income.
5 Gas Utilities with Highest Dividend Yields: #4
Targa Resources, Inc. (NYSE:TRGP)
Dividend Yield: 1.5%
Targa is an energy company and midstream firm that acquires assets and operates an LPG export terminal. It also receives a share of its profit from the Grand Prix natural gas pipeline, having recently become full operational.
Targa Resources was forced to lower its dividend to $0.10 following the financial crisis in March 2020 due to the COVID-19 pandemic. This corresponds to an annual rate of $0.40 and a yield of 1.5%, but this is far from the norm for Targa Resources. In the months prior, the company was paying quarterly dividends of $0.91 and had kept this dividend either level or increasing for more than 10 years.
The company is currently trading at a discount, and closed on January 27, 2021 at $27.42. Although the last year has been difficult for Targa, its five-year returns are still a healthy 81.3%. The current pullback in share price may prove an excellent buying opportunity for investors.
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)
Dividend Yield: 7.9%
Suburban Propane L.P. – a gas distribution company in Northern New Jersey and Southern New York State – currently pays a quarterly dividend of $0.30 per share, making its annual rate $1.80 and its forward yield 7.9%. This is a decrease from recent past, as the company reduced its dividend by 50% in the wake of the financial crisis in early 2020. From the second to the third quarter, Suburban Propane reduced its dividend from $0.60 to $0.30.
The share price is currently low and undervalued at $15.24 as of closing on January 27, 2021. While the company has lost 24.4% in capital depreciation in the trailing 12-month period, its downward momentum likely took the stock further below its fair market value. A valuation of the company places the fair value around $18.00, or an 18.1% increase on the current stock price.
5 Gas Utilities with Highest Dividend Yields: #1
Summit Midstream Partners L.P. (NYSE:SMLP)
Dividend Yield: *12.7%
Summit Midstream Partners is a midstream energy infrastructure development company. It creates and sell systems to collect natural gas from pad sites and other central receipt points in order to deliver a supply to processing-plants and contractors alongside its users.
The company, like countless others in the energy sector, was forced to cut its dividend in the second quarter of 2020, a massive fallout-period for energy companies especially. To give an idea of the dividend paying power of the company, however, we can look to its *trailing yield, which came to 12.7%. Its most recent dividend payment was $1.87 for that quarter, still a sharp decrease from its previous rates of $8.62 per share through 2018.
Summit Midstream Partners has fallen considerably in the last year, losing 67.1% of its share price and bringing it to the very affordably price of $15.20 per unit.
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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.