UGI Corporation (UGI): Best Dividend Stock to Buy Under $25?

We recently compiled a list of the 12 Best Dividend Stocks Under $25. In this article, we are going to take a look at where UGI Corporation (NYSE:UGI) stands against the other dividend stocks under $25.

Dividend stocks have remained important for investors, standing the test of time regardless of the market conditions. Dividends have historically contributed approximately one-third of the market’s total return since 1960. Among dividend strategies, investors tend to favor those that emphasize dividend growth over high yield. One of the main reasons for this inclination is that as these companies show more tangible results, investors gain confidence from seeing improvements in free cash flow, earnings, and dividend growth during a recovery, compared to more speculative options. In addition, as interest rates decrease with Federal Reserve rate cuts in an economic recovery, yield-oriented investors shift their investments from cash to dividend-paying stocks.

According to analysts, due to volatile economic conditions since 2020 and ongoing market uncertainties affecting corporate earnings, high-yielding companies lacking strong financial stability and discipline may face challenges sustaining future dividend payouts. These companies could be vulnerable to potential dividend cuts or suspensions. On the other hand, dividend growth strategies have demonstrated their effectiveness in both rising and falling interest rate periods. The Dividend Aristocrats index, which tracks the performance of companies with at least 25 consecutive years of dividend growth, delivered a 14.26% return during the falling interest rates period between May 2005 and March 2024, while high dividend stocks underperformed with over 10% return, according to a report ProShares. Similarly, in the rising interest rates period between this timeframe, dividend growers returned 10.26%, with high dividend stocks returning 9.22%. To learn more about dividend growth stocks, readers should have a look at Dividend Zombies and Kings with Longest Dividend Payouts. 

Dividend growth strategies offer potential solutions to the challenges faced by high dividend-paying stocks in a rising-rate environment in two main ways. By prioritizing dividend increases over high yields, dividend growth stocks are less influenced by the value factor, which typically affects high dividend payers. This resilience allows dividend growth stocks to perform better in growth-oriented markets.

Given investors’ penchant for dividend-paying companies, businesses worldwide are consistently rewarding shareholders with dividends. According to Janus Henderson, dividends rose by 5% in 2023 to $1.66 trillion, marking the third consecutive year of record highs following a brief dip in payouts during the pandemic in 2020. The fund manager expects total dividends to reach a new peak of $1.72 trillion, reflecting a 3.9% increase on a headline basis. The payments indicate that balance sheets remain strong, despite a global economic downturn and increased costs associated with servicing debt. It also underscores the advantages for the banking sector of higher interest rates. Nearly half of last year’s dividend growth came from banks, which rewarded shareholders after experiencing a significant increase in profits from lending activities.

Our Methodology:

For this list, we used a stock screener to find dividend stocks trading below $25 as of June 21. From the initial list, we selected companies with dividend yields above 2% and a history of regular dividend payments, indicating sustainable dividends. Finally, we narrowed it down to 12 stocks that had the highest number of hedge fund investors, as tracked by Insider Monkey in Q1 2024. Hedge funds aren't dividend investors; they invest in stocks for capital gains. Essentially, our list presents the best dividend stocks under $25 that have the potential to deliver large capital gains. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).

A view of the skyline from an electricity pylon, to show the ubiquity of the companies energy products.

UGI Corporation (NYSE:UGI)

Number of Hedge Fund Holders: 29

Share Price as of June 21: $22.6

UGI Corporation (NYSE:UGI) ranks fifth on our list of the best dividend stocks under $25. The natural gas and electric utility company mainly specializes in delivering safe, reliable, and affordable energy to its consumers. During the strategic review post quarterly earnings, the company evaluated various options for creating value, such as selling, spinning off, or forming a joint venture for AmeriGas, its LPG business. After a thorough discussion, the board concluded that the company should concentrate on restructuring and operational enhancement plans for AmeriGas. This plan involves a strong emphasis on customer retention, increasing free cash flow, effective cost management, and disciplined capital allocation.

The propane market in Europe has been declining due to an oversupply of propane and reduced demand from the heating industry. UGI Corporation (NYSE:UGI) operates an LPG distribution business in 17 European countries through its subsidiaries and affiliates. Due to headwinds in the propane business in Europe, prices have dropped nearly 20% and are lower than they were two years ago, which we think is expected to benefit the company in FY24. The company's AmeriGas propane revenue came in at $795 million, down slightly from $867 million in the prior-year period.

In fiscal Q2 2024, UGI Corporation (NYSE:UGI) natural gas division posted its highest-ever second-quarter earnings, marking a 32% growth from the same period last year. The company also made significant strides in cost control to boost operational efficiency. These results demonstrate the resilience of its portfolio in delivering long-term value to shareholders. For FY24, the company anticipates meeting its adjusted EPS guidance, projecting earnings between $2.70 and $3.00 per share.

UGI Corporation (NYSE:UGI) is one of the best dividend stocks on our list as the company has never missed a dividend in 140 consecutive years. In addition, the company has been growing its dividends consistently for the past 37 years. It currently offers a quarterly dividend of $0.375 per share and has a dividend yield of 6.50%, as of June 21.

The number of hedge funds tracked by Insider Monkey owning stakes in UGI Corporation (NYSE:UGI) stood at 29 in Q1 2024, down from 33 in the previous quarter. These stakes have a consolidated value of nearly $180 million. Among these hedge funds, First Eagle Investment Management was the company's leading stakeholder in Q1.

Overall UGI ranks 5th on our list of the best dividend stocks to buy under $25. You can visit 12 Best Dividend Stocks Under $25 to see the other dividend stocks that are on hedge funds’ radar. While we acknowledge the potential of UGI as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than UGI but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.