Critical Comparison: ONE Gas (NYSE:OGS) and RGC Resources (NASDAQ:RGCO)

RGC Resources (NASDAQ:RGCO) and ONE Gas (NYSE:OGS) are both utilities companies, but which is the superior investment? We will contrast the two companies based on the strength of their dividends, analyst recommendations, valuation, profitability, institutional ownership, risk and earnings.

Dividends

RGC Resources pays an annual dividend of $0.87 per share and has a dividend yield of 3.9%. ONE Gas pays an annual dividend of $2.72 per share and has a dividend yield of 3.3%. RGC Resources pays out 64.9% of its earnings in the form of a dividend. ONE Gas pays out 58.0% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. RGC Resources has raised its dividend for 22 consecutive years and ONE Gas has raised its dividend for 2 consecutive years. RGC Resources is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Analyst Recommendations

This is a breakdown of current ratings for RGC Resources and ONE Gas, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
RGC Resources	0	0	2	0	3.00
ONE Gas	0	6	7	0	2.54

RGC Resources presently has a consensus target price of $27.00, indicating a potential upside of 20.21%. ONE Gas has a consensus target price of $87.12, indicating a potential upside of 5.36%. Given RGC Resources’ stronger consensus rating and higher probable upside, equities analysts clearly believe RGC Resources is more favorable than ONE Gas.

Earnings and Valuation

This table compares RGC Resources and ONE Gas”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
RGC Resources	$95.33 million	2.45	$13.28 million	$1.34	16.76
ONE Gas	$2.43 billion	2.14	$264.22 million	$4.69	17.63

ONE Gas has higher revenue and earnings than RGC Resources. RGC Resources is trading at a lower price-to-earnings ratio than ONE Gas, indicating that it is currently the more affordable of the two stocks.

Insider and Institutional Ownership

35.8% of RGC Resources shares are owned by institutional investors. Comparatively, 88.7% of ONE Gas shares are owned by institutional investors. 7.2% of RGC Resources shares are owned by company insiders. Comparatively, 0.9% of ONE Gas shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock is poised for long-term growth.

Profitability

This table compares RGC Resources and ONE Gas’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
RGC Resources	13.05%	11.73%	4.15%
ONE Gas	12.61%	8.80%	3.48%

Volatility & Risk

RGC Resources has a beta of 0.51, suggesting that its share price is 49% less volatile than the S&P 500. Comparatively, ONE Gas has a beta of 0.62, suggesting that its share price is 38% less volatile than the S&P 500.

Summary

RGC Resources beats ONE Gas on 9 of the 17 factors compared between the two stocks.

About RGC Resources

RGC Resources, Inc. is a holding company whose principal operating subsidiary, Roanoke Gas Company, distributes natural gas to residential, commercial and industrial customers in Roanoke and surrounding communities in southwestern Virginia. Roanoke Gas traces its roots to 1883. Its services include natural gas delivery and related customer programs, such as energy-efficiency assistance. Through subsidiaries, RGC Resources also has interests in natural gas infrastructure, including the Mountain Valley Pipeline.

About ONE Gas

ONE Gas, Inc. is a regulated natural gas distribution company that delivers natural gas to residential, commercial and industrial customers. Its operations serve communities in Oklahoma, Kansas and Texas. The company operates through three utility divisions: Oklahoma Natural Gas, Kansas Gas Service and Texas Gas Service. Its services include distributing natural gas through local pipeline systems and maintaining the infrastructure used to provide that service. ONE Gas became an independent, publicly traded company in 2014 after separating from ONEOK, Inc. Its business is focused on natural gas distribution rather than exploration or production.