WGL Holdings Inc. (WGL) is a natural gas utility that has raised its annual payout 36 times in a row, even in the midst of a low gas price environment. In addition, with strong customer growth and a focus on cost control initiatives, this Zacks #2 Rank (Buy) is expected to head towards the upper end of this year's earnings growth projection.
Impressive Fiscal Third Quarter
WGL Holdings reported fiscal third quarter (ended June 30) adjusted earnings per share of 8 cents on August 3, outpacing the Zacks Consensus Estimate at break-even and last year's earnings of 1 cent. The earnings growth was led by significant contributions from its regulated business and its non-regulated segments (namely Energy Marketing and Commercial Energy Systems).
The company's utility business narrowed its operating loss, benefiting from new rates in Maryland and Virginia along with customer growth. The Retail Energy-Marketing segment experienced a robust gain from higher electric margin, driven by a growing market share partially offset by lower natural gas margins.
Going forward, WGL Holdings expects adjusted earnings per share in the range of $2.43 to $2.55 for fiscal 2012.
Consistent History of Growing Dividend
WGL Holdings pays an attractive annual dividend of $1.60 per share, yielding a solid 3.95%. In March, it raised its dividend by 3.2%, marking the 36th consecutive year with a dividend increase.
Moreover, WGL Holdings' current dividend caps the payout ratio at around 64%, reflecting enough room for further dividend hikes owing to strong management and solid finances.
Earnings Estimates Inch Higher
Four of 7 estimates for fiscal 2012 have moved higher in the past 30 days, pushing the Zacks Consensus Estimate up by 3 cents (or 1%) to $2.51. For fiscal 2013, two out of 8 estimates moved north over the same time frame, helping the Zacks Consensus Estimate advance by 2 cents (or 1%) to $2.59.
With the fiscal 2011 profit level being $2.23 per share, the projected growth rate stands at 12% for the current fiscal year. The annual growth rate is expected to be 3% in fiscal 2013, provided WGL Holdings meets the estimate.
With respect to its valuation metrics, shares of WGL Holdings look attractive. The stock trades at about 16.2 times the forward estimate, a slight discount to the industry average. Its price to sales ratio of 0.8 is also below its peer group at 1.0 . The company's trailing 12-month return on equity (:ROE) of 10.5% is similar to that of its peer group average.
Market Performance & Technicals
As the chart below shows, analysts are increasingly bullish on the company, as is evident by their earnings estimates. In particular, with the price and consensus chart demonstrating consistently increasing consensus estimates for fiscal 2012 and 2013, shares are expected to climb higher.
Headquartered in Washington, D.C., WGL Holdings is engaged in the sale and delivery of natural gas, and serves energy-related products and services. It owns and operates Washington Gas Light Company and a group of energy-related, non-utility businesses that focus on retail energy marketing and design-build energy services. Washington Gas Light is a regulated natural gas distribution company that serves customers in Washington, D.C., Maryland, and Virginia.
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