Northwest Natural: Good Dividend, But That Is All

Core Viewpoint - Northwest Natural Holding Company is a utility company that primarily provides natural gas services and is often overlooked by investors who favor electric utilities, despite its strong market position in natural gas and water services [2][3][4]. Company Overview - Northwest Natural Holding Company operates primarily in Oregon and Washington, serving approximately 2 million people through its natural gas utility, which accounts for 96.40% of its first-quarter 2024 revenue [6][7]. - The company has a long history of over 165 years and is committed to safety, environmental stewardship, and community care [6]. Financial Performance - The company's share price has declined by 7.67% since the last analysis, underperforming both the S&P 500 Index and the U.S. Utilities ETF [3][4]. - Despite the share price decline, the dividend yield has increased to 5.40%, making it attractive for income-focused investors [4][18]. - In the first quarter of 2024, the natural gas distribution segment's net income decreased by $6.2 million due to higher operating expenses and warmer weather, which negatively impacted natural gas consumption [9][10]. Customer Mix and Consumption Patterns - The majority of the company's customers are residential, which leads to revenue fluctuations based on seasonal demand for heating [9]. - The trend towards remote work may benefit the company as residential consumption of natural gas could increase while commercial consumption decreases [9]. Weather Impact - Warmer-than-normal winter temperatures negatively affected the company's performance in the first quarter of 2024, but forecasts suggest a colder winter ahead, which could boost revenue [9][10]. Debt and Financial Structure - As of March 31, 2024, the company has a net debt-to-equity ratio of 1.25, indicating a moderate reliance on debt compared to peers [13][17]. - Interest expenses have stabilized, with the company paying between $19 million to $21 million per quarter, a significant increase from pre-pandemic levels but no longer exhibiting rapid growth [11][17]. Dividend Sustainability - The company has maintained its quarterly dividend at $0.48750 per share, supported by an operating cash flow of $228.1 million against dividend payments of $68.6 million [18][19]. Valuation - Northwest Natural Holding has a forward price-to-earnings ratio of 15.87, which is reasonable compared to its peers, but the company faces potential earnings pressure due to increased depreciation expenses [20][21]. - The stock appears fairly valued, with no immediate catalysts for price appreciation, making it more suitable for income-focused investors rather than growth-oriented ones [21].