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One Gas (OGS) Unveils Future Plans, Increases Dividend Rate

Zacks Equity Research

One Gas Inc. OGS announced that its net income and earnings per share will increase by an average of 6-8% annually between 2018 and 2023, up from the previous range of 5-7% between 2017 and 2022.

Capital expenditures, including asset removal costs, are expected in the range of $450-$500 million per year between 2019 and 2023, with nearly 70% of the amount targeted for system integrity and replacement projects.

One Gas aims to replace 380 miles of old pipelines per year on an average between 2018 and 2022. The primary objective of this ongoing replacement initiative is to maintain safe and reliable gas supply operations for customers. The company already replaced 1,715 miles of old gas pipelines in the 2014-2017 time period.

2018 Guidance Narrowed, Dividend Raised

One Gas narrowed its 2018 earnings guidance to the range of $3.23-$3.27 per share from its previous expectation of $3.15-$3.35. The revised range takes into consideration the recently issued order in Oklahoma.

The board of directors of ONE Gas increased the quarterly dividend by 4 cents per share to 50 cents, effective first-quarter 2019, resulting in an annualized dividend of $2.00. The current dividend yield of the company is 2.58%, better than the Zacks S&P 500 Composite’s 2%

ONE Gas expects average annual dividend growth rate to be 7-9% between 2018 and 2023, with a targeted dividend payout ratio of 55-65% of net income, subject to its board of directors' approval.

2019 Guidance Issued

The midpoint of ONE Gas' 2019 net income guidance is $182 million, or $3.42 per share, which is expected to benefit from new rates, normal weather in its service territories and higher depreciation expense from increased capital investments.

What’s Driving One Gas?

ONE Gas is utilizing new technologies in its services territories, resulting in efficiency improvement and control in expenditure. In addition, the assets of the company are located near significant natural gas reserves, which offer ONE Gas a competitive advantage against peers.

In addition, this 100% regulated natural gas distribution utility has a high percentage of residential customers, providing stability and strong visibility of forward earnings. The company has been experiencing a steady increase in customer volume since 2013.

Price Movement

In the past 12 months, One Gas’ shares have gained 10.8% compared with its industry’s growth of 1.8%.

Zacks Rank & Key Picks

One Gas currently has a Zacks Rank #3 (Hold). Some better-ranked stocks from the utility sector are Spire Inc. SR, Southwest Gas Corporation SWX and FirstEnergy Corporation FE, each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.  

Spire, Southwest Gas and FirstEnergy reported positive earnings surprise 14.37%, 31.31% and 3.67%, respectively, in the last four reported quarters.

The Zacks Consensus Estimate for 2019 earnings for Spire, Southwest Gas and FirstEnergy has moved up 0.8%, 1%% and 0.4%, respectively, in the past 60 days.

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