(06/04/15) Piedmont Natural: Set It and Forget It

When it comes to dividend stocks that constantly reward their investors, our latest featured recommendation is one undoubtedly near the top of the list, explains income expert Jimmy Mengel, editor of The Crow's Nest.

Piedmont Natural Gas (PNY) is a set it and forget it stock. It started paying quarterly dividends back in 1956 and has steadily increased them year over year since 1979.

Piedmont is, for all intents and purposes, a pure-play utility company, serving 1 million customers. About 90% of earnings come from regulated utility business and the segment of Piedmont devoted to this business owns about 96% of the company’s assets.

This business is overwhelmingly in the Carolinas and Tennessee, though it has agreements and joint ventures spanning a much broader area that covers a lot of ground east of the Mississippi River.

Piedmont also has a number of promising projects in the works; it has two major pipeline investment agreements in place. The total investment by Piedmont for both joint ventures is $625-675 million.

It has a 24% stake in Constitution Pipeline, which is building a 120-mile pipeline to transport Pennsylvanian Marcellus shale gas to the Northeast US.

It also has a 10% stake in Atlantic Coast Pipeline, which is building a 550-mile pipeline to connect West Virginia to eastern North Carolina and to the deep water port town of Norfolk, Virginia.

Both of these pipelines, even with minority stakes, will let Piedmont benefit from wider distribution to take advantage of regional arbitrage opportunities and larger scales of economy.

Though the company’s share price has lagged behind some peers in recent years, we should keep in mind that Piedmont is not buying back shares to pump up earnings per share.

Piedmont has a very strong history of dividend increases. It started paying quarterly dividends back in 1956 and has steadily increased them year over year since 1979.

The last dividend was $0.33, declared on March 5, 2015 and paid on April 15, 2015. As such, we can expect the next announcement to come in early June, have an ex-dividend date (cut-off for collecting it) in late June, and to receive it in mid-July.

This puts the forward annual dividend at $1.32 and the yield at 3.6%. The payout ratio—or percentage of earnings paid to shareholders in dividends—comes in at 73%.

A distinct advantage of any Piedmont investment is access to a generous direct investment and dividend reinvestment program, which includes a 5% discount on shares.

With steady dividends, stable and growing business, and a built-in 5% discount, Piedmont will be a strong income play for us.