At the beginning of this month we received a check for $39.52 ( 23.75 cents X 166.377591 shares) from UGI Corporation (UGI) which is the second dividend payment in a row with no increase. UGI has a sporadic dividend payment increase schedule such that they sometimes have even raised the dividend twice in a single year. Here’s a look at their historical dividend payment growth for UGI:
For a utility, this type of dividend growth is unheard of typically. Just in the past year, UGI shares have risen over +20% bringing the yield to nearly a 10-year low of around 2.2%. Given that we’re building a position in UGI over a period of 56 months, it’s not like we’re living off the dividend yield and that this matters much. We’re much more excited about dividend growth than yield at the moment. When we take a look at UGI’s explicitly stated financial goals, we see the following:
Right now the payout ratio is sitting at 60% so they need to bring that down a bit in order to hit that financial goals. That pairs well with their stated plan of a 4% dividend growth per year which is meaningfully less than the 10-year average. What we do like is that UGI is calling out their strong dividend track record and this leads us to believe that they’re likely to do everything they can to ensure that track record doesn’t get broken. In order to consistently pay a dividend and grow it over time, you need smooth earnings which often come in the form of diversified earning streams. UGI is doing well in this respect as seen below:
With interest likely to increase sooner rather than later, utilities are expected to take a hit. Even though UGI doesn’t have a high yield, they will fall along with the rest. We’ll be more than happy to pick up some cheap shares should that happen with the $120 a month we’re putting into UGI over the next 54 months.