The shares of this utility company were recently upgraded at Wells Fargo to ‘Overweight.’ The shares have a current dividend yield of 5.49%, paid quarterly.
South Jersey Industries, Inc. (SJI)
From Sure Retirement Newsletter
South Jersey Industries is an energy company that engages in the purchase, transmission, and sale of natural gas. It sells natural gas and pipeline transportation capacity to residential, commercial, and industrial customers, and also transports natural gas purchased from suppliers to customers. It operates about 150 miles of main lines, nearly 7,000 miles of distribution lines, and serves more than 400,000 customers in New Jersey. The company also owns a small solar business and has oil, gas, and mineral rights in the Marcellus Shale in Pennsylvania.
South Jersey was founded in 1910 and trades with a $2.5 billion market cap. The company has paid dividends to shareholders for 70 consecutive years, and has raised its dividend each year for more than two decades.
South Jersey reported second-quarter earnings on August 4th, 2021 slightly beating expectations on both the top and bottom lines. Total revenue was up 20.0% to $311.8 million, while economic earnings equaled $2.0 million or $0.02 per share. For the first six months of 2021, South Jersey generated $130.9 million or $1.22 in economic earnings-per-share, compared to $106.0 million or $1.14 per share in the first six months of 2020.
The company’s Utility segment produced economic earnings of $124.9 million in the first half of 2021, up from $111.9 million in the year-ago period. The Non-Utility segment saw economic earnings of $24.1 million versus $11.3 million in the first half of 2020.
South Jersey reaffirmed its outlook for $1.55 to $1.65 in economic earnings-per-share and we are forecasting $1.60 for 2021.
Like other regulated utilities, South Jersey’s competitive advantage is that it has what is essentially a monopoly in its service areas. This affords the company a guaranteed return on equity through price increases and capex recapturing. South Jersey does have an unregulated business, but the vast majority of its earnings come from what is protected by regulators; the solar business is a side bet.
Given this, South Jersey’s recession resistance should be quite strong. Indeed, during the Great Recession South Jersey posted earnings-per-share of $1.14, $1.19, and $1.35 during the 2008 to 2010 stretch and continued to increase its dividend. Last year proved to be a strong showing as well as the company produced record earnings in 2020 despite the COVID-19 crisis.
South Jersey’s earnings have been volatile at times due to natural gas pricing, as well as dilution through a rising share count. The acquisition of Elizabethtown Gas in 2018 helped revenue growth and was aided by organic growth from higher customer counts and usage. We currently expect 3% earnings-per-share growth in the coming years, mostly through organic revenue and earnings growth from the regulated utility. The non-regulated business offers growth potential, but it is quite small and increases earnings volatility. Total return potential of 14.6% per year stems from the yield, 3% growth rate and the possibility of a 7.8% valuation tailwind.
Ben Reynolds, Josh Arnold & Eli Inkrot, Sure Retirement Newsletter, suredividend.com, ben@suredividend.com, October 2021