Dominion Resources (D), a forward thinking utility company

Dominion’s (NYSE:D) dividend was increased by a solid 8%. Its overall yield is 3.95% based upon the increase. The firm started paying a dividend in 1993. Dominion was recently featured as one of our favored utility companies. Dominion has been boosting its quarterly payout every year since 2009. The energy producer matched its 8 percent increase from the prior year of $0.6475 per share. The company pays a quarterly dividend, typically in March, June, September and December.

Dominion Resources is an integrated utility firm that produces over 25,000 megawatts of electric generation per year. It also maintains 63,000 miles of electric transmission and distribution lines. Dominion operates one of the nation’s largest natural gas storage systems as well.  The company operates through three segments: Dominion Virginia Power (DVP), Dominion Generation, and Dominion Energy. The DVP segment engages in regulated electric transmission and distribution operations in both Virginia and North Carolina. The Dominion Energy segment maintains natural gas distribution operations, storage operations, and natural gas gathering, and LNG. The large firm is now constructing an LNG export facility in Maryland, and is 45% owner of the proposed Atlantic Coast Pipeline.  The Dominion Generation generates electricity through nuclear, coal, hydro, and additional renewables.  Dominion Resources was founded in 1909 and is based in Richmond, Virginia.

Dominion has maintained a solid three-year growth rate of dividends of 7.6 percent. Dominion currently ranks 8th in yield within the large cap electric utility category. The quarterly dividend for the March payment will be $0.755 versus the prior year rate of $0.70 per share. Dominion Resources Inc. is a member of our Top 100 Dividend Stock List (see below).

top-100

The dividend will be paid at the new higher rate on March 20, 2017, to shareholders of record at close of business on March 3, 2017. Dominion Resources is currently priced at $76.28. Listed in the table below are the quarterly dividend payments since 2010.

Date Quarterly Dividend
3/3/2017 0.755
11/30/2016 0.7
8/31/2016 0.7
6/1/2016 0.7
3/2/2016 0.7
11/23/2015 0.648
8/26/2015 0.648
5/27/2015 0.648
2/25/2015 0.648
11/25/2014 0.6
8/27/2014 0.6
5/28/2014 0.6
2/26/2014 0.6
12/4/2013 0.563
9/4/2013 0.563
6/5/2013 0.563
2/26/2013 0.563
11/28/2012 0.527
8/29/2012 0.528
5/30/2012 0.528
2/29/2012 0.528
11/30/2011 0.493
8/24/2011 0.493
5/25/2011 0.493
3/2/2011 0.493
11/24/2010 0.458
8/25/2010 0.458
5/26/2010 0.458
2/24/2010 0.458


Quantitative
 Analysis:

We examine Dominion Resources upon our five key criteria, which include; 

Category Value Score
Dividend Yield 3.95% 65
Dividend Growth (3 to 7 year avg) 7.5% 260
Forward P/E 19.91 197
S&P Financial Rating BBB+ 160
Beta  0.65 50
Total Score   732

Additional quantitative information on P/S ratio and historical yield;

% Yield 3 Year Div. Growth Rate 7 Year Div. Growth Rate SPS 2017 P/S Ratio 10 yr P/S Low 10 yr P/S High 5 yr lowest Yield % 5 yr max Yield %
3.95% 7.5% 7.4% 19.15 3.96 1.75 4.33 3.03% 4.14%

Positives;

  • Dominion maintains an investment grade credit rating.
  • Dominion has maintained an impressive three-year growth rate of dividends of 7.5 percent.
  • Dominion’s dividend yield is well above that of the S&P 500 Index.
  • Dominion maintains a beta of 0.65, lower than the average company.
  • Dominion’s current dividend yield (3.99%) is above its five-year average of 3.59% and near its high of 4.14%.

Negative;

  • Dominion is trading above its ten-year average price/sales (P/S) ratio.

Latest Earnings & Overall Analysis:

Dominion issued its earnings data on November 9th. The company reported Q3 of $1.14 earnings per share, topping the consensus estimate of $1.04 by $0.10. This marked the third consecutive quarter of impressive earnings results. Fortunately for the firm, the average temperature in their primary southeast region was above average. This drove up demand for electricity by their customers.  Lower expenses and taxes also assisted in the firm beating guidance. Operating earnings for the three months ended September 30, 2016, amounted to $716 million compared to operating earnings of $611 million for the same Q3 period in 2015.

The large utility company also made progress on multiple projects. Dominion finalized construction on solar farms, Four Brothers and Three Cedars in Utah. The firm also has additional solar development in Virginia and North Carolina.  The firm also has planned for a 2019 date of final construction for the Atlantic Coast Pipeline project.  The Atlantic Coast Pipeline is being developed with fellow utility firms Southern and Duke. But Dominion has the highest market share at 45% of the project.

For the Q4 earnings, Dominion gave a positive outlook of earnings per share of $0.90 to $1.05 per share.  The range is dependent upon weather conditions and progress on its various growth projects.  Full year earnings should come in at  $3.80 per share.  Dominion maintains a solid return on equity of 14.7%.

The key advantage for Dominion out to 2020 is its unique focus on infrastructure projects. This include the aforementioned solar facilities, shale storage, natural gas transmission, and a continued focus on LNG. Its LNG business could become one of the firm’s best growth elements over the next decade. Its Cove Point Liquefaction project is one key element. Although the cost of the project if prohibitive at nearly $4 billion, the project is now 75 percent complete and management indicated on its latest conference call that the facility is scheduled and on-budget for a late 2017 start date. Fortunately, Dominion has contracted with multiple vendors in the Far East to deliver the LNG that is produced at Cove Point.  Earnings from these various projects could account for over half of revenue within the next five years. That would make Dominion less reliant upon traditional utility business lines like regulated electric and natural gas.

On its regulated side, one positive element is Virginia.  Its business in the state maintains what is known as rate rider treatment, which can enhance future rate increases. Additionally, legislation has been just introduced to Virginia’s General Assembly that would lift a rate freeze on electric utilities put in place in 2015. If it would pass, it would strongly benefit Dominion. Dominion Resources also owns a large stake in Dominion Midstream that will generate substantial cash flow from future pipelines. The firm decided to “drop down” Questar Pipeline to Dominion Midstream Partners, following the closure of the Dominion-Questar Corporation merger. Dominion received $1.725 billion for the deal which was completed in December.

Overall Dominion has one of the better growth profiles within the industry along with a high level of dividend growth. Analysts expect Dominion to earn $3.82 a share for calendar year 2017. Priced at $76.28 a share, it trades at 19.9 times forward earnings. This is a slight premium to the industry. The only potential negative for Dominion are its nuclear operations, with possible headline risk, as well as its decision to shutter its Yorktown coal plant in April.  The firm may have to utilize rolling blackouts on the Virginia Peninsula in 2017 in order to maintain grid reliability. Outside of those elements, Dominion remains a leader in its industry with a near 4% yield. The firm releases earnings tomorrow morning, so any investor may want to wait for results. If the price drops on any of the above concerns, it would be an excellent entry price for a long-term dividend investor.

Based on the firm’s consistent high earnings, higher than average dividend yield, investment grade rating,  and very low beta,  Dominion Resources still remains a top ranked firm within the sector.  It continues to qualify as a member of our  Top 100 Dividend Stocks list.  

Please subscribe to our monthly premium newsletter to find out more about our thoughts on the utility industry & which stocks are listed in our model portfolio.  

Dominion Resources Inc. Dividend Yield Chart (Click to enlarge)

d3

Chart Explanation:  Dividend growth stocks may be viewed favorably when the current yield is above historical readings for the past 5 years.

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