What do income investors want from a given stock? The obvious answer is, of course, income.
However, that's not all that income investors want from their investments. They prefer not to overpay for a stock, so valuation is important. And like any other investors, income investors would love for the stocks they buy to appreciate.
Solid income, attractive valuation, and strong share-price growth aren't always easy attributes to find in one stock. But that doesn't mean such stocks can't be found. UGI Corporation (UGI -0.74%) is an ultra-high-yield dividend stock that's dirt cheap -- and Wall Street thinks it will soar 32% over the next 12 months.
Great dividend, low valuation
UGI is a utility company focusing on natural gas transmission and distribution, electricity generation and distribution, propane distribution, and other energy services. Its roots go back to 1882 when what was then United Gas Improvement Company became the first public utility holding company in the U.S.
Like many utility stocks, UGI offers a juicy dividend. Its forward dividend yield currently stands at 6.42%. The company has paid dividends for 139 consecutive years and has increased it for 36 consecutive years.
UGI is valued attractively by almost any metric. The stock trades at only 7.4 times forward earnings, according to LSEG. Its price-to-sales ratio is a low 0.68, and its price-to-book ratio is also low at 1.07.
Granted, any valuation metric should be weighed against those of similar companies, but UGI stacks up well against other utility stocks. The average forward price-to-earnings ratio for utilities in the S&P 500 is nearly 18.4, nearly 1.5 times higher than UGI's forward earnings multiple.
What Wall Street thinks about UGI
UGI's share price has fallen roughly 5% year to date as many other utility stocks have soared. The Utilities Select SPDR ETF, which is a good proxy for the utilities sector, has risen nearly 22% in 2024.
Despite UGI's underperformance, Wall Street hasn't thrown in the towel on the stock. The average 12-month price target of analysts surveyed by LSEG reflects an upside potential of 32%.
Does such a lofty price target mean Wall Street analysts are uniformly bullish about UGI? No. Actually, only one of the five analysts surveyed by LSEG in November rated the stock as a strong buy. Three analysts recommended holding UGI, while one analyst viewed the stock as an underperform.
Even with this mixed bag, though, the lowest 12-month price target for UGI among the analysts surveyed by LSEG is 16% higher than the current share price. The message on Wall Street about this stock appears to be that it should move significantly higher -- but that doesn't mean you should rush to buy it.
Is UGI stock a buy?
Is UGI stock a good pick to buy right now or not? I think the best answer is... it depends on your investing style.
Growth investors will likely want to look elsewhere for opportunities. Despite delivering one of the best financial performances in the first three quarters of fiscal 2024 in the company's 140+ years in business, UGI will probably never be an impressive growth machine. That's just the reality of the company's business model.
Value investors, on the other hand, could find UGI quite attractive. The stock truly is dirt cheap from nearly every vantage point. The company continues to face some challenges -- notably including its AmeriGas propane business. However, the company has a capable new CEO and what appears to be a solid strategy to turn things around.
Finally, I think UGI looks like a great pick for income investors. Its ultra-high dividend yield seems to be secure and the company has a great track record of paying and increasing dividends. Whether or not Wall Street is right about the stock soaring 32% over the next 12 months, UGI should be a winner over the long term for income investors.
