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WGL Holdings Burns Bright For Long-Term Growth

Posted: Jan 07, 2009 11:58 AM by Greg Sushinsky

Tickers in this Article: NI, EQT, NFG, WGL

Looking for a quiet stock that won't give you massive indigestion when the market swings like an out-of-control pendulum with you hanging on the end for dear life? Are there any such stocks or industries that fit that bill? If you are interested in stabilizing your swinging portfolio, then you might want to look at the natural gas utility WGL Holdings (NYSE:WGL), also known as Washington Gas Light.

Sweet Boredom
Utilities have historically been considered boring stocks. Previously called widow-and-orphan stocks, they were held primarily for their dividends and their solid, steady income. With the changes in electric utility deregulation in the last couple of decades, even stable utilities had problems, such as high costs, the burning of coal and its related environmental issues, nuclear power difficulties and high debt loads to finance these things. Many electric utilities went through changes, mergers and some even flirted with failure as there was a major shakeup in the industry. Natural gas utilities mostly had a smoother ride, even despite recent wide price fluctuations. (For more on stocks that do better during periods of market downturn, read Guard Your Portfolio With Defensive Stocks.)

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Why Washington Gas?
WGL Holdings is a natural gas utility located in an economically strong area - the Virginia and Maryland corridors - around the nation's capitol. WGL has a $1.5 billion market cap, so it is somewhat smaller than the giant natural gas companies Equitable Resources (NYSE:EQT), which has a $4 billion market cap and does business in Pennsylvania, or Nisource (NYSE:NI), which has a $3.8 billion market cap and operates in New Jersey. WGL sells at a P/E of just over 13 and pays a 4.5% dividend. This consistent dividend is nothing to be sneered at, especially given the value of a cash dividend.

WGL is off from its year high of $37.80 to $31.17, after falling to as low as $22.40. However, in its recent November earnings report, WGL reported $2.33 EPS vs. last year's $2.19, a 6.4% increase (using the conservative GAAP accounting; non-GAAP would be a plus 23%). The guidance that WGL gave for 2009 in its outlook predicts flat earnings growth, but these numbers have to be assessed on a relative basis to both the economy and other industries. Flat earnings is a conservative prediction, given the ongoing predictions even for major companies and given the flux in the natural gas as well as oil and all energy industries. (For more information on earnings and GAAP, read How To Evaluate The Quality Of EPS.)

Add National Fuel Gas (NYSE:NFG) to the above list, though it pays an 8% dividend because it does not quite have the bedrock outlook that WGL or the others have, but all four of these stocks have been much better performers than many other big cap stocks, which free fell in the markets this year.

Who Should Buy This?
Washington Gas would not raise a pulse in any day-trader, but if you are looking to diversify into some less volatile holdings, Washington Gas or some of the other natural gas utilities are worth a look.

The temptation after this past horrific year for most investors might be to try to make up losses with risky, fast-moving stocks, which WGL certainly isn't. But if you want to lend some stability to your overall portfolio, the natural gas utility stocks will be strong slow-burners in 2009 and beyond.

Don't like individual stocks? Be sure to read Utility Funds: A Bright Choice In Bear And Bull Markets to learn how you can invest in these sectors through funds instead.

By Greg Sushinsky

Greg Sushinsky is a passionate independent investor, who has done his own research, analysis and investing for 20 years. One of his earliest investing memories was when he first saved and bought U.S. Savings Bonds with his own money as a small child. From there, he studied investing on his own and made small stock purchases as he grew as an investor.

Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.

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