Investing in Resilience: Why I Just Bought UGI Corporation

As an investor seeking stability and income, I recently added UGI Corporation (UGI) to my portfolio. UGI, a diversified utility holding company, offers a compelling combination of resilience, an impressive dividend, and an attractive valuation. This article explores the reasons behind my decision to invest in UGI.


UGI's diversified business model contributes to its resilience. The company operates in three primary segments: Utilities, Energy Services, and International LPG Distribution. Its Utilities segment serves customers in Pennsylvania, Maryland, and West Virginia, providing natural gas and electric services. The Energy Services segment operates natural gas pipelines and storage facilities, while the International LPG Distribution segment serves several European countries. This diversification allows UGI to withstand challenges in one segment by relying on the strength of others.

UGI's cost control measures and balance sheet strengthening efforts have positively impacted its financial performance and dividend sustainability. The company has been focusing on stabilizing AmeriGas, its retail propane distribution business, by controlling costs and strengthening its balance sheet. These efforts have resulted in solid fiscal 2024 third-quarter results, demonstrating UGI's commitment to maintaining its dividend and growing its business.


UGI's historical dividend growth and payout ratio compare favorably to its peers in the utility sector. The company has paid a dividend for 140 consecutive years, with a forward dividend yield of 5.95% and a payout ratio of 47.8%. Over the last 10 years, UGI has increased its dividend by a compound annual growth rate of 6%. Although the company is temporarily pausing dividend hikes to focus on strengthening its balance sheet, it plans to resume increases of approximately 4% per year starting in fiscal 2027.

UGI's forward price-to-earnings ratio and Zacks Equity Research grade indicate an attractive valuation for long-term investors. The stock trades at only 8x forward earnings, less than half the average forward price-to-earnings ratio of 18.8 for the S&P 500 utilities sector. Zacks Equity Research gives UGI a grade of "A" on valuation, further supporting its attractiveness as an investment opportunity.


In conclusion, UGI Corporation's resilient business model, impressive dividend, and attractive valuation make it an appealing investment for income-seeking investors. The company's commitment to cost control and balance sheet strengthening, as well as its historical dividend growth, provide a solid foundation for long-term success. As UGI continues to navigate its diverse business segments and adapt to changing market conditions, I am confident in my decision to invest in this ultra-high-yield dividend stock.