When talk turned to investing at your most recent gathering, holiday or otherwise, odds are that conversation touched on the mysteries of bitcoin, Ethereum or other cryptocurrencies. It's highly unlikely, however, that talk revolved around one of the less popular corners of the investing world: utility stocks.
With the new year upon us, though, let's take a moment to focus on several utility stocks which feature high-yield dividends and warrant some attention: ONEOK (OKE 0.79%), AmeriGas Partners, L.P. (APU), and National Grid (NGG 2.36%).
Image source: Getty Images.
A good one to consider
Over the past six months, the 30-day average daily volume for ONEOK's stock has dropped by more than 41%, suggesting it has fallen out of some favor. The company, in addition to a 38,000-mile integrated network of natural gas liquids (NGL) and natural gas pipelines, owns and operates a vast infrastructure which helps it to connect NGL supplies in the Mid-Continent, Permian, and Rocky Mountain regions with major markets.
If you're interested in finding a shareholder-friendly company, ONEOK is certainly one that deserves attention. Returning $2.98 per share to investors in fiscal 2017, ONEOK has grown its dividend at a 19% compound annual growth rate (CAGR) since fiscal 2013. And the company forecasts annual dividend growth of 9% to 11% through 2021. But ONEOK's dividend policy isn't the only feature which should attract investors.
In the midst of a challenging environment for energy-related stocks, ONEOK has still managed to grow profitability. If the company succeeds in meeting its guidance and reports $2 billion in adjusted EBITDA for fiscal 2017, that would be an 11% CAGR since 2013. And with approximately $450 billion in capital expenditures slated for 2018 to develop expansion projects, the company is poised for further growth.
This big dog is a gas, gas, gas
The largest propane distributor (based on gallons distributed annually) in the U.S., AmeriGas Partners provides propane to more than 1.8 million customers in 50 states. Unike ONEOK, whose decline in popularity is more recent, AmeriGas Partners has received less attention from investors over a longer period; over the past three years, the company's 30-day average trading volume has fallen off 44%. On the other hand, propane peers like Ferrellgas Partners (FGP) and Suburban Propane Partners (SPH 2.19%) have seen sharp rises in trading activity, increasing 76% and 74%, respectively, over the same period.
A strong operator, AmeriGas Partners deserves recognition for its strong margins compared to its peers:
APU Gross Profit Margin (Annual) data by YCharts.
The stock's 8.2% yield is lower than the 9.35% for Ferrellgas Partners and 13.47% for Suburban Propane, but simply chasing high-yield opportunities can be an unwise endeavor. I'd much rather take AmeriGas Partners' dividend yield of over 8%, and its healthy margins, over its peers' higher-yielding stocks any day. And the fact that the stock trades at 37 times trailing earnings, compared to its five-year average of 43.9 according to Morningstar, only strengthens the argument that it deserves investors' attention.
A familiar name on both sides of the pond
An international operator, National Grid provides the transmission and distribution of electricity and gas to millions of customers in the United States and the United Kingdom. Although the stock hasn't seen a dip in its trading volume, it has plummeted 24% over the past three years.
National Grid may be of particular interest to investors focused on renewable energy. While its name may not be as familiar as solar-panel manufacturers, geothermal operators, or fuel-cell-oriented companies, the company is playing a key role in transforming the domestic energy landscape.
Image source: Getty Images.
In 2016, for example, National Grid -- which delivers electricity generated by the offshore Block Island Wind Farm to the grid in Rhode Island -- played a major role in bringing the nation's first offshore wind project to fruition. More recently, this past December, National Grid announced it had received a grant to help fund the development of an energy storage project with Vionx Energy, Worcester Polytechnic Institute, and Energy Initiatives Group, LLC.
The stock's 4.95% yield may get investors' attention, and the conservative average annual payout ratio of 69% should reassure investors that management is not willing to sacrifice the company's financial health in order to please shareholders. The stock's price is yet another reason to be charged up: Currently, shares trade at 5.8 times operational cash flow -- below the three-year average of 7 times cash from operations, according to Morningstar.
Investor takeaway
Bitcoin and Ethereum may be stealing many of the headlines, but there are compelling opportunities to be found in other corners of the market. Whether it's the increasing profitability and growth prospects of ONEOK, the high margins and attractive valuation of AmeriGas Partners, or the attentiveness to financial well-being and bargain price tag of National Grid, all three utility-sector leaders offer reasons for investors to take a closer look.
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