4 Gas Distribution Stocks Worth Adding in a Flourishing Industry

Industry Overview - Natural gas distribution companies transport natural gas from production regions to consumers across the U.S., utilizing extensive underground pipeline networks [1] - The industry is transitioning towards cleaner energy, with natural gas serving as a critical bridge fuel for decarbonization goals [1] - The U.S. has 3,353 trillion cubic feet of natural gas and operates a 2.6-million-mile pipeline network, but faces challenges from aging infrastructure and competition from alternative energy sources [3] Future Outlook - U.S. Energy Information Administration (EIA) projects an increase in domestic dry natural gas production in 2025, particularly in the Permian and Eagle Ford regions [4] - LNG export volumes are expected to rise by 22.7% year-over-year in 2025 and 9.6% in 2026, highlighting the importance of gas pipelines for transportation to export terminals [4] - Interest rates have declined by 100 basis points, benefiting capital-intensive utilities planning infrastructure upgrades [5] Investment Opportunities - Natural gas utilities are investing approximately $37 billion annually to enhance the reliability of distribution and transmission systems, indicating long-term growth potential [6] - The Zacks Utility Gas Distribution industry ranks 52, placing it in the top 21% of the 244 Zacks industries, reflecting strong near-term prospects [7][8] Performance Metrics - The Gas Distribution industry has outperformed the S&P 500 and the Utility sector over the past year, with an 18.1% gain compared to 10.8% for the S&P 500 [9] - The industry is currently trading at a trailing 12-month EV/EBITDA ratio of 11.12X, lower than the S&P 500's 16.96X and the sector's 15.09X, suggesting a potential valuation opportunity [12] Company Highlights - Atmos Energy Corporation (ATO): Plans to invest $3.7 billion in fiscal 2025, with a current dividend yield of 2.23% and long-term earnings growth projected at 7.19% [18][19] - UGI Corporation: Expected to invest $3.7-$4.1 billion through fiscal 2027, with a dividend yield of 4.12% and long-term earnings growth of 5.2% [22][23] - ONE Gas Inc. (OGS): Aims to invest $4 billion through 2029, with a dividend yield of 3.64% and long-term earnings growth of 5.6% [26][27] - Northwest Natural Holding Company (NWN): Plans to invest $2.5-$2.7 billion through 2030, with a dividend yield of 3.64% [30][31]