Why This Surprising Dividend Stock Is Still Attractive after an 80% Rally
Saturday, Dec 21, 2024 12:17 pm ET
UGI Corporation (UGI) has been a standout performer in the utilities sector, with its stock price surging by 80% in recent months. Despite this impressive rally, the company's dividend stock remains an attractive investment opportunity for several reasons.
Firstly, UGI's resilient business model has proven to be a significant driver of its stock price increase. The company operates in the utilities and energy services sectors, which have historically shown stability and reliability, even during economic downturns. UGI's diverse portfolio of natural gas utilities, electric utilities, and energy services subsidiaries has enabled it to maintain consistent earnings growth, with the company expecting average long-term earnings-per-share growth of between 4% and 6%.

Secondly, UGI's impressive dividend yield and payout ratio have attracted income-oriented investors. The company currently offers a forward dividend yield of 5.95%, which is significantly higher than the average yield of the S&P 500 utilities sector. Additionally, UGI's payout ratio stands at a reasonable level of 47.8%, indicating that the company's dividend is well-supported by its earnings. Despite a temporary pause in dividend hikes to strengthen its balance sheet, UGI plans to resume increases of roughly 4% per year starting in fiscal 2027.
Lastly, UGI's attractive valuation has made it an appealing value investment. As of Dec. 22, 2024, UGI trades at around 8x forward earnings, according to Zacks Equity Research, which is less than half the average forward P/E ratio of 18.8 for the S&P 500 utilities sector. This low valuation, combined with UGI's resilient business, impressive dividend, and attractive leadership, makes it an attractive investment opportunity despite the significant rally.

In conclusion, UGI Corporation's dividend stock remains an attractive investment opportunity even after its 80% rally. The company's resilient business model, impressive dividend, and attractive valuation have all contributed to its stock price increase and continue to make it an appealing investment for income-oriented investors and value seekers alike. As UGI continues to deliver solid earnings growth and maintain its commitment to dividend growth, investors can expect the company to remain a strong performer in the utilities sector.
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