MGE Energy: Buy This Dividend Champion While It's On Sale

Core Viewpoint - MGE Energy (MGEE) is a stable utility company with a strong dividend growth history and a solid financial position, despite facing challenges in Q2 2024 due to unfavorable weather conditions and rising costs [2][3][10] Financial Performance - MGEE's operating revenue for Q2 2024 decreased by 1.5% year-over-year to $145.7 million, with electric operating revenue falling by 0.9$120.4 million and natural gas operating revenue declining by 4.5% to $25.1 million [3][4] - The diluted EPS dropped by 16.5$0.66, missing analyst expectations by $0.29, primarily due to higher fuel costs and increased depreciation and maintenance expenses [4][5] Growth Outlook - The Madison area, where MGEE operates, is projected to grow by over 1$1.2 billion in capital through 2028 to support customer growth, which is expected to compound at a mid to high 1% rate annually [5] - Analysts project a 13.5% increase in diluted EPS to $3.69 for 2024, followed by 9.2$4.03 in 2025 and 8.9% growth to $4.39 in 2026 [5] Valuation - MGEE's shares are currently undervalued, with a fair value estimated at$93 per share compared to a market price of $85, indicating an 8% discount to fair value [6] - The company's current P/E ratio of 23.1 is below its 10-year average of 25, suggesting potential for price appreciation [6] Dividend Profile - MGEE has a forward dividend yield of 2%, which is lower than the utility sector median of 3.8%, but the company's payout ratio is expected to be in the mid-to-high 40% range, indicating strong dividend safety [7] - The company has a nearly 50-year dividend growth track record, positioning it to potentially become a Dividend King by the end of next year [7] Investment Thesis - MGEE is viewed as a buy due to its strong fundamentals, growth potential, and secure dividend, with expectations of double-digit annual total returns as it approaches Dividend King status [10]