The energy sector has seen its fair share of volatility and transformation in recent years, and 2024 is shaping up to be another pivotal year. With the continued push towards renewable energy and decarbonization, traditional oil and gas companies are adapting their strategies to stay competitive. Even as energy demand is broadly expected to surge, McKinsey reports that gas “is the only fossil fuel expected to grow beyond 2030.” 

As the energy transition unfolds, companies like National Fuel Gas (NFG), with its established utility infrastructure and integrated exposure to natural gas (NGK24), could be worth considering for income-minded investors. This is a Dividend King that not only promises stability with its impressive track record of dividend growth, but also presents an attractive investment opportunity, given its current undervaluation.

Let's take a closer look at why National Fuel Gas could be a cheap dividend stock to buy in 2024 as the energy landscape continues to evolve.

NFG Stock Is a High-Yield Bargain

National Fuel Gas Company (NFG) is an integrated energy player, covering everything from natural gas exploration and production to pipeline operations and utility services for homes and businesses. This fully integrated model allows them to effectively manage the entire natural gas cycle, ensuring a steady revenue stream and adding operational efficiencies. And, as you might expect from a utility stock combined with an energy company, NFG offers a healthy yield.

Over the past year, NFG hasn't quite kept up with the broader market, as represented by the S&P 500 Index ($SPX). NFG stock is down 2.7% over this period, compared to a gain of 21.2% for the S&P 500. 

In 2024, though, NFG has rebounded with a gain of about 6.7%, roughly in line with the SPX's 5% return. 

Even after the sharp rally from its February lows, NFG looks attractively priced at current levels. The company's forward P/E ratio of 11.03 is well below the utilities sector median of 16.00, as well as its own 5-year average multiple of 12.25. The stock's forward price/sales ratio of 2.00 is also a discount to its historical average.

Plus, there's the generous dividend history to consider. They recently declared a quarterly dividend of $0.495 per share, maintaining their reputation for consistent payouts. This is part of a long-standing tradition, as NFG has increased its dividends for 53 consecutive years. This places them among the elite Dividend Kings, a testament to their financial health and disciplined fiscal management.

The new annual dividend rate of $1.98 per share results in a forward dividend yield of approximately 3.71% at the current stock price. These dividends are supported by a moderate payout ratio of 40.46%, maintaining a balance between returning income to shareholders and reinvesting in their operations for future growth.

NFG further backed its commitment to shareholder value with a new share repurchase program. They've authorized the buyback of up to $200 million of their outstanding common stock, targeting completion by the end of fiscal 2025. 

National Fuel Gas: What's the Earnings Outlook?

Even with its diversified business model, NFG is still exposed to volatility natural gas prices, and the company reported a mixed bag of Q1 2024 earnings on Feb. 8. Revenues of $525.4 million were down over 20% year-over-year, and fell short of expectations. However, adjusted earnings of $1.46 per share beat analysts' expectations of $1.32, and GAAP earnings of $1.44 were also stronger than anticipated, despite falling 21.7% from the year-ago quarter.

Despite the year-over-year declines, investors seemed to like what they saw, sending NFG's stock up 5.77% to close at $48.78 on the day of the earnings release. 

Looking ahead, consensus estimates are calling for NFG's bottom line to narrow by 5.8% this fiscal year, before returning to growth in fiscal 2025, with EPS projected at $5.77 for the year. Analysts expect National Fuel Gas to increase revenue by 13% this fiscal year, and by another 9.1% to $2.68 billion in fiscal 2025.

On the quarterly earnings call, Tim Silverstein - NFG's Treasurer and Principal Financial Officer - noted, “Obviously, we do still have exposure to lower gas prices. That being said, our balance sheet is in really good shape, as I mentioned, both Moody’s and S&P reaffirmed our credit ratings and our – both our upgrade and downgrade thresholds. So we certainly have substantial ability to fund our growing dividend over time.”

What's the Forecast for NFG Stock?

The company's prospects have caught the attention of Wall Street analysts, who have collectively given NFG a "Moderate Buy" rating. This consensus is based on the opinions of 5 analysts, with 2 recommending a "Strong Buy" and 3 suggesting a "Hold" on the stock.

The analysts' mean target price for NFG is set at $61.33, which represents upside potential of approximately 14.5% from Monday's close.

The Investment Case for NFG: A Blend of Value, Growth, and Income

The bottom line? National Fuel Gas (NFG) might be a Dividend King, but its recent share price performance has been a mixed bag amid fluctuating commodity prices. While the stock has lagged the broader market over the long term, its cheap valuation and solid dividend yield could make it an intriguing income play for investors willing to ride out the volatility.