WGL Holdings Inc.WGL

Morningstar Rating

Stock Research and Analysis

by Mark Barnett

WGL has the essentials that we look for in our favorite regulated natural gas utilities: customer growth, revenue decoupling, and commitment to the pure-play regulated model. Although this company has modest upside potential, its low-risk business model Read more

Bulls Say

We like WGL's commitment to the pure-play regulated utility model. The regulated utilities accounted for more than 97% of earnings in 2008 and 90% of earnings in 2009.

WGL operates in a favorable environment. Its service territory includes seven of the nation's 15 wealthiest counties and has the lowest unemployment of any major metro area in the country.

This company's rate structure is designed to provide for more stable cash flows with a rate stabilization mechanism in Maryland and proposals to expand it in Virginia and Washington, D.C.

WGL has paid a dividend for 158 straight years, with an impressive 33 consecutive years of dividend increases. Read more

Bears Say

While revenue decoupling was a big improvement for WGL, it limits upside earnings potential from increased usage.

The difficulty of raising capital has increased significantly, hampering WGL's ability to expand through rate base investment.

Dividends are taxed in the year they are received, while capital gains taxes can be deferred indefinitely. WGL pays out roughly 60% of its earnings because of limited opportunities for reinvestment.

Because utilities are similar investments to bonds, as a group they tend to suffer during times of rising interest rates as fixed-income investments become more appealing. Read more

Strategy

WGL's management has already implemented or is pursuing revenue-normalization adjustments and performance-based rates in all of its service territories. These measures could increase shareholder returns Read more

Management

We give WGL fair marks for stewardship. We like that management has concentrated on its regulated utility and paid dividends rather than wasting cash on value-destroying acquisitions or other ventures. We also think management has been defending shareholder Read more

Profile

WGL Holdings is an energy services holding company whose main operating segment, Washington Gas Light, purchases natural gas from third-party marketers on behalf of its Read more

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How One Utility Outshines
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