NiSource: A Lot To Like With This Attractively-Priced Natural Gas Utility

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NiSource is one of the largest natural gas utilities in the United States, although the company also has an electric arm.

The company is currently investing heavily in renewables as it has a number of projects slated to begin operation over the next two years.

NiSource is well-positioned to give investors a 10% to 12% average total annual return over the next three years.

The company boasts a reasonably strong balance sheet and the 3.12% dividend yield is quite sustainable.

The stock boasts an attractive valuation at the current level and so may be worth considering for a portfolio.

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Brett_Hondow/iStock via Getty Images NiSource Inc. (NYSE: NI ) is one of the largest regulated utilities in the United States, providing services to households and businesses in six states. The utility sector has long been a favorite of conservative investors such as retirees due to the relatively stable finances and cash flows that these companies typically boast regardless of economic conditions. In addition, utility companies tend to have somewhat higher yields than most other things in the market, and NiSource’s 3.12% current yield is no exception to this. Unfortunately for NiSource, it is primarily electric utilities that have been attracting much of the attention lately but NiSource operates primarily as a natural gas utility, although it does have a regulated electric arm. This is mostly due to the incorrect belief that natural gas utilities will soon become obsolete. Fortunately, though, this has also resulted in natural gas utilities such as NiSource having very attractive valuations. As such, the company may make sense for an investor’s portfolio today. About NiSource

As stated in the introduction, NiSource is one of the largest utilities in the United States, serving customers in the states of Indiana, Ohio, Pennsylvania, Maryland, Virginia, and Kentucky: NiSource Investor Presentation As might be expected from such a large geographic area, NiSource has a very sizable customer base. The company serves 3.2 million natural gas customers and approximately 500,000 electric customers throughout the region. The fact that the company has both electric and natural gas businesses offers a certain appeal. This is because electricity and natural gas are both seasonal to a certain degree. In the case of natural gas, this seasonality comes from the fact that the substance’s primary use is heating. As a result, natural gas will be much more heavily consumed during the winter than during the summer, which causes the cash flows of natural gas utilities to be highest during the coldest months of the year. Although electricity is consumed year-round, it does have its highest consumption during the summer months when it is used to drive air conditioners. The fact that NiSource has both electric and natural gas businesses helps to eliminate the seasonal fluctuations in cash flow that would otherwise accompany these regular demand fluctuations. With that said though, we can see that the company’s natural gas business is substantially larger than its electric one so it is not able to fully offset this effect. As we can see here, NiSource does tend to have higher cash flows in the first three months of the year than it does at other times but it is overall remarkably well-balanced for a natural gas utility: Seeking Alpha Despite some of the quarterly fluctuations, we can see that there is a great deal of stability here. This is one of the defining characteristics of utilities and it is one of the things that retirees tend to appreciate the most about them. This stability comes from the fact that utilities provide a product that most people would consider to be a necessity for our modern way of life. As such, people typically prioritize paying their utility bills ahead of other more discretionary expenses during times when money gets tight. In addition, utilities are generally monopolies in their own service areas so their customers do not really have a choice which utility they have to pay. Thus, they cannot easily take their business elsewhere if they are not satisfied.

Another defining characteristic of utilities is that they typically grow their earnings per share from year to year. This is because they are constantly increasing their rate base. The rate base is the value of the company’s assets upon which regulators allow it to earn a specified rate of return. As this rate of return is a percentage, […]

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