As I mentioned in my last post, I used my Medical Properties Trust (MPW) sale proceeds to purchase a new stock for my Portfolio.

I tried to look for a stock with a decent yield, even though I knew I wasn’t going to replace the 15%+ one I lost when I sold MPW.

I didn’t return to the REIT space for my MPW replacement.  Instead I ventured into the Utilities sector.

While providing less than half the yield, the dividend for this new stock is much more safe, and it’s got a long track record of dividend growth.

More importantly, the business is stronger.  However, some recent headwinds for this new stock have driven its stock price down, making for an attractive entry point.

Here are the details of my latest purchase.

 

UGI Corp. (UGI)

This company has been around a long time.  UGI was founded back in 1882 in eastern Pennsylvania, and is still headquartered in the state.

It’s a distributor and marketer of energy products and related services.  This includes natural gas, propane, electricity, and renewable solutions.  UGI operates in the U.S and internationally.

UGI operates three distinct businesses.  Its largest business involves propane distribution throughout Europe and the U.S. (through AmeriGas – a brand you may have heard of ).  This accounts for over half of revenues.  Unlike most utility businesses, this one is not regulated, so it proves to be more more volatile (whether that be due to the weather or economic activity).

The most stable of UGI’s businesses is its regulated gas utilities serving customers throughout Pennsylvania and West Virginia.  This business brings in roughly 20% of revenues.

The remaining sales come from UGI’s third business.  UGI has midstream assets, including natural gas pipelines and storage facilities which have fixed fees.

UGI sees the day it must transition its fossil fuel-dependent business to cleaner energy.  People and their governments will demand this.  As a result, the company is already expanding its exposure to renewable sources of natural gas and propane.

I was attracted to UGI by its high current yield (thanks to its nearly 39% price drop in 2023), and dividend growth that has been better than I might expect for a Utilities stock.  A purchase would help replace some of the lost dividend income I realized from the MPW sale.  Of course, I’d need to add some investment dollars on top of the MPW sale proceeds to recoup all the lost dividend income, but that’s OK.

At its current level, UGI looks like a solid purchase.  Despite propane market headwinds, UGI has a healthy earnings payout ratio of around 50% and a strong balance sheet.  In its financial outlook, UGI has presented long-term financial commitments to deliver mid-to-upper single-digit EPS and 4% dividend growth over the next 3 to 4 years.  We’ll see if this come to fruition.

On 8/22/23, I initiated my UGI position by purchasing 133 shares at $22.75/sh, for a total of $3,025.75.  The stock yielded 6.59% at my purchase price, or about 2.3x my current Portfolio yield of 2.83%.

The purchase added a substantial $199.50 to my annual forward dividend income.  My first dividend payment will be at the beginning of October.

UGI becomes my 4th, and smallest, Portfolio stock in the Utilities sector.  That’s quite a few Utilities for my Portfolio considering I didn’t have any representation from that sector at the start of 2021.

UGI starts as the 8th smallest position in my Portfolio, sandwiched (in terms of value) between two of my REITs.  It’s just behind VICI Properties (VICI), but ahead of American Tower (AMT).

 

As I normally do with a new holding, let’s take a quick look at the dividend growth history dating back to 2000…

 

 

UGI has paid uninterrupted dividends since 1885.  Wow!   It’s also increased its dividend every year since 1988.

Thus, in the table above (which goes back to 2000) you’ll see an increased annual dividend for each year.  Most years dividend hikes are in the 3%-5% range, but there are years interspersed where double-digit dividend raises took place.  This has resulted in 7% dividend growth rates over the 3-yr, 5-yr & 10-yr periods.

UGI’s most recent dividend raise was a 4.17% increase this past May.  This is probably a good representation of the typical dividend boost to expect on an annual basis.

Dividend safety for UGI is rated ‘Very Safe’ by Simply Safe Dividends (score of 90 out of 99).  Its score had been 99 in May, 2023, but the challenges in its non-regulated propane business led to a minor downgrade in its safety rating.

The addition of UGI to my Portfolio increased the number of my stock holdings to 60.

 

Summary

I made a single Portfolio transaction this past week, adding a new stock to my Portfolio.

I used my MPW sale proceeds from the previous week, added some cash, and established a position in UGI.

I bought 133 shares.  The total investment was $3,025.75.

It’s my 4th Utilities stock in the Portfolio, and my highest-yielding one, too.  UGI yielded 6.59% at my purchase price.

My annual forward dividend income climbed by $199.50, enough to essentially offset the income lost from my MPW sale.

Since UGI is a new Portfolio holding, the number of stocks in my Portfolio increased by one to 60.

 

Is UGI in your portfolio?  Are there other stocks in the Utilities sector that your prefer more?  I look forward to your comments!