Buyers in search of dividend-growth corporations that function minimal volatility traits have a tough time as of late. Actual property was once the go-to sector for rising dividends, however with the retail and workplace market remaining gloomy and the residential market threatened by increased rates of interest, that is not the case.
The patron staples sector additionally used to have many low-volatility dividend-growth alternatives, however inflation has been squeezing the margins of those corporations.
Lastly, such alternatives can typically be discovered amongst utilities. Whereas the sector has gotten costly, I imagine one firm, specifically, stands out that’s value analyzing. The corporate is ONE Fuel, Inc. (NYSE: OGS), which in my opinion, options distinctive dividend development and low-volatility traits.
As traders are prone to admire this high quality in such an unsure market setting, I’m bullish on the inventory.
Why is OGS the Final Low-Volatility Dividend-Progress Play?
There are a number of traits that make ONE Fuel appear to be probably the greatest low-volatility dividend-growth performs out there as of late. One in all them, which contributes to its stability, is the corporate’s market place. Principally, ONE Fuel provides pure gasoline to roughly 2.3 million prospects by way of 41,600 miles of distribution mains and a couple of,400 miles of lengthy transmission pipelines.
The corporate’s prolonged distribution community has allowed it to seize massive market shares in its operational areas. The truth is, ONE Fuel is the main pure gasoline distributor in Kansas and Oklahoma and the third-largest in Texas. ONE Fuel’s market share in every of those states by the variety of prospects is 72%, 88%, and 13%, respectively. Therefore, the corporate has a large moat, particularly in two of the three states it has a presence in, which can also be an excellent aggressive benefit.
Additional, ONE Fuel’s distribution charges are determined by the regulatory authorities of every state, which have to verify utility corporations have the chance to earn a good and first rate return on their capital employed.
As a result of the speed hikes permitted by regulators are fairly predictable within the case of ONE Fuel, the corporate has managed to supply extraordinarily slender outlook estimates regarding its medium-term internet revenue and dividend development prospects.
Notably, administration anticipates base charge hikes to be between 8% and 9% by 2026. With this catalyst, mixed with an increasing buyer base over time, unchanging pure gasoline consumption patterns, and pre-determined CapEx wants, the corporate expects that its annual earnings per share will enhance by between 6% and eight% over the identical interval.
Having the luxurious of forecasting such a slender earnings-per-share development course allows administration to supply a similar dividend development outlook. Thus, administration additionally expects that ONE Fuel’s dividend hikes will even vary between 6% and eight%, which is a good facet by way of driving robust investor confidence within the inventory.
For so long as I’ve been researching varied corporations, I’ve encountered few to none which have supplied steerage that’s so particular for such a protracted forward-looking interval. For that reason, ONE Fuel seems to be some of the reliable corporations on the subject of predicting its medium-term whole return potential. Because of this I take into account the inventory one of many final low-volatility dividend-growth performs.
Q2 2022 Outcomes: One other Secure Quarter
The energy of ONE Fuel’s skill to ship steady outcomes was as soon as once more demonstrated in its most up-to-date outcomes. For Q2 2022, the corporate posted $429 million in revenues, implying year-over-year development of 35.9%. Revenues had been uplifted by robust demand for pure gasoline, gradual buyer development, and charge hikes.
Working prices grew as effectively, however income development exceeded these, leading to significant working revenue development. Particularly, working revenue got here in at $58.6 million in comparison with $51.1 million within the prior-year interval.
The achieve was powered by a $14.4 million enhance in charges and a $1.5 million enhance in residential gross sales, pushed by internet buyer development in Oklahoma and Texas, partially offset by a rise of $5.8 million in exterior service prices.
Therefore, EPS improved as effectively, increasing from $0.56 to $0.59 year-over-year. Because of the ongoing optimistic momentum seen lasting all year long, administration reaffirmed their beforehand supplied steerage, nonetheless anticipating ONE Fuel’s FY-2022 EPS to land between $3.96 and $4.20.
The midpoint of this vary signifies year-over-year EPS development of 6%, which additionally matches administration’s medium-term EPS development steerage. It’s value noting that the corporate has traditionally carried out towards the upper finish of its steerage. Due to this fact, EPS development may find yourself near 7%, additional converging towards the midpoint of administration’s development targets by 2026.
Is OGS Inventory a Purchase?
Turning to Wall Avenue, ONE Fuel has a Maintain consensus score primarily based on one Purchase and three Holds assigned up to now three months. At $89.00, the common ONE Fuel inventory forecast suggests 10.2% upside potential.
Conclusion: ONE Fuel is a Stable Dividend-Progress Play
Contemplating we’re at the moment experiencing a really risky buying and selling setting loaded with quite a few uncertainties, ONE Fuel might be a worthwhile decide for conservative dividend-growth traders, as the corporate is ready to provide bettering outcomes at an exceptionally predictable tempo.
Based mostly on the midpoint of administration’s EPS steerage, the inventory is now buying and selling at a ahead P/E of roughly 19.8x. For my part, this isn’t an affordable a number of, however traders ought to proceed to pay a premium for the corporate’s distinctive traits.
Additional, whereas the current dividend yield of about 3.1% is just not huge, it ought to positively contribute strongly to the inventory’s total-return prospects and traders’ whole return visibility.
