"Under-the-Radar Stocks" is a daily feature that uncovers little-known companies worthy of investors' consideration. Check in at 5 every morning to find out about stocks that tend to beat their bigger brethren.Natural gas supplies have ballooned since the recession hit, causing prices to drop by more than a third since July. Despite the price decline, some companies are still increasing earnings and dividends. Here's a small-cap utility to consider. Folsom, N.J.-based South Jersey Industries ( SJI) was formed in 1910 when Atlantic City Gas and Water merged with Atlantic City Gas, which was owned by Clarence Geist, who later became the largest utility investor in America. After a series of acquisitions, South Jersey Industries began to prosper. That success continues today. The company's first-quarter profit climbed 28% to $31.6 million, or $1.06 a share, from a year earlier. Revenue rose 4% to $362 million. South Jersey Industries has a forward-looking business model, with a hedging operation that locks in low commodity prices and a residential-installation group that retrofits houses and installs solar panels. South Jersey Industries has boosted profits by using low gas prices to attract new customers. The company even applied for a 13% rate reduction on June 1. Oil-to-gas conversions at existing homes are helping the firm offset the lull in new-house construction. Its Conservative Incentive Program identifies ways for customers to reduce energy consumption, enhancing client satisfaction and the company's public image. The firm's commitment to shareholders is equally impressive. As other companies slashed payouts in 2008, South Jersey Industries increased its dividend by 10%. It plans to increase its payout by 6% to 7% a year.
The company's shares have lost 3.4% in the past year, less than the 10% drop in the S&P 600 Utilities Index. The stock has climbed by more than 10% every year since 2002. Still, the small-cap utility is undervalued. South Jersey Industries trades at a price-to-earnings ratio of about 12, a 17% discount to the S&P 500 Index and a 9% discount to the average gas provider. The stock offers a hefty 3.4% dividend yield. Investors seeking a play on cheap, natural gas and stable dividends should consider South Jersey Industries. We rate the stock "buy" with a grade of A-minus. TSC Ratings provides exclusive stock, ETF and mutual fund ratings and commentary based on award-winning, proprietary tools. Its "safety first" approach to investing aims to reduce risk while seeking solid outperformance on a total return basis.