ONE Gas is an ideal stock for long-term investing.
Consistent, reliable growth since its founding is set to continue.
Three time-tested strategies to make your investment grow exponentially.
Now we’re cooking with gas! Followers of my writing on the cannabis sector might be surprised by the subject of this article, which is about as far from cannabis as you can get. However, there is a place for companies like ONE Gas ( OGS ) in almost every portfolio. Creating wealth in the long term is what investing is all about, and ONE Gas is a company built to do just that. It won’t make you rich next month or next year, but in the long term it’s as much of a high probability wealth builder as you will find in the investing universe. This article reviews the company’s strengths, assess the latest earnings report, and recommend investment strategies.
Since I first wrote about ONE Gas last December , the stock has done quite well, with a total return of 21.11% vs. a decline of 9.39 in the S&P500: Seeking Alpha After the Q4 earnings report it’s time to review the investment case and look at why OGS is getting so much love from investors. ONE Gas: The Company
ONE Gas is a local distribution company [LDC] in the business of selling and distributing natural gas in specific geographic areas. It was founded in 2014 when ONEOK ( OKE ) divested its local gas distribution operations to become strictly a gas producer. It serves 2.2 million customers in Texas, Oklahoma, and Kansas. LDCs are similar to electric utilities in that they provide energy in a regulated environment.
Since its inception in 2014 ONE Gas has had a remarkably consistent history of growth in revenue, earnings, and dividends: 2014 2015 2016 2017 2018 2019 2020 2021 EPS $2.07 $2.24 $2.65 $3.08 $3.25 $3.51 $3.68 $3.85 Shares (millions) 52.4 52.6 52.5 52.5 52.7 52.9 53.1 53.5 Div/share $0.84 $1.20 $1.40 $1.68 $1.84 $2.00 $2.16 $2.28 Div increase 42.86% 16.67% 20.00% 9.52% 8.70% 8.00% 5.56% Payout ratio 40.58% 53.57% 52.83% 54.55% 56.62% 56.98% 58.70% 59.22% It continues to have quite a few tailwinds that will continue this growth into the future: Guaranteed return : Regulators guarantee a return, assuring a profit under all conditions
Steady growth : Projections are that gas use will continue to rise for many years.
Guaranteed market : They usually operate in an area without competitors.
Resistant to commodity price fluctuation : Regulations include fuel adjustment costs, which means rates decrease when gas prices go down but increase when prices go up
Inelastic demand : Although customers may consume less to some degree when prices are high, it is an essential product that customers must consume on a daily basis
Preferred product : It is the preferred form of energy for consumers The advertising slogan, “Now we’re cooking with gas!” has been a meme since before memes were a thing. ( Look here for the interesting origin story )
History of the Stock Price
After steady share price growth for its first six years, OGS went into a prolonged slump from February 2020 to January 2022. ONE Gas stock price since 2014 (Yahoo Finance) When fossil fuels are out of favor every company associated with them is treated the same, even though LDCs have little in common with the rest of the industry. As the anti-fossil movement became prominent during and after election season, OGS experienced the same negative sentiment as the rest. The stock price became completely disconnected from underlying performance, which continued to be very good. Where We Are Now
The price slump is over. While there is still a lot of anti-oil & gas sentiment, the threat of significant actions that would hurt oil & gas has receded. The massive Build Back Better legislation was the main threat has stalled, probably permanently. Opposition to it turned out to be much stronger and durable than expected. Given its service area of Texas, Kansas, and Oklahoma, ESG was never much of a threat to ONE Gas anyway. Texas and Oklahoma particularly are highly unlikely to do anything that hurts fossil fuels.
In addition, ONE Gas is textbook value stock and continues to benefit from the change from growth to value investing. This change is gaining momentum, and as seen in this chart from a recent article by KCI Research , it could have a long way to go. Value stocks cheap compared to growth […]