Dominion Energy Stock: High Dividend Yield But Slowing Dividend Growth
Dominion stock has been one of my favorite dividend stock holdings.
Why? During the recent past, the Dominion dividend represented one of the best combinations of current dividend income and dividend growth to fund my living expenses.
So let’s put the Dominion Energy stock dividend under the microscope. And work through a Dominion stock analysis.
Does the Dominion stock dividend still measure up to my high expectations? Is Dominion Energy stock a good investment?
We will answer these questions and more. Since Dominion stock is one of the many holdings in the Dividends Diversify model dividend stock portfolio.
Dominion Energy: Company Background
Dominion Energy is one of the largest producers and transporters of energy in the United States utility sector. Headquartered in Richmond, Virginia, they have nearly 7.5 million customers in 18 states. Assets are approaching $100 billion focused on:
- Electric generation, transmission, and distribution
- Natural gas storage, transmission, distribution, and import/export services
- Solar energy generation
Dominion has 3 primary operating segments.
First of all, the Power Delivery Group distributes electricity to North Carolina and Virginia.
The Gas Infrastructure Group distributes, transmits, and stores natural gas to both residential and industrial customers. Service territories include Ohio, the Southeastern United States, and the Rocky Mountain region.
Finally, the Power Generation Group manages the company’s fleet of power generating stations. Power sources include renewables like water, wind, and solar. And more traditional power sources like nuclear, gas, coal, and oil.
Dominion stock trades under the ticker symbol “D” on the New York Stock Exchange. So if I may refer to Dominion stock as “D stock” for short.
Business Risks That Could Have An Impact On The Dominion Dividend
First of all, regulatory relations have traditionally been positive for Dominion. But the political winds can always shift and limit pass-through of costs plus a fair profit on growth projects.
Furthermore, cost overruns and delays associated with the Atlantic Coast Pipeline (ACP) project may continue. This 600-mile underground pipeline is an interstate natural gas transmission pipeline that will serve multiple public utilities and their growing energy needs in Virginia and North Carolina.
Finally, with the SCANA acquisition complete, Dominion’s ability to realize merger savings.
Facts & Figures Regarding the Dominion Stock Dividend
First of all, let’s understand everything we need to know about the Dominion dividend.
What Is Dominion’s Dividend Rate Per Share?
Dominion stock pays an annual forward dividend of $3.76 per share. Based on the recent stock price, that dividend payout puts the Dominion stock dividend yield at a very attractive 4.8%!
How Often Does Dominion Energy Pay Dividends?
Dominion pays its dividend every 3 months or 4 times per year. Each quarterly dividend payment is 94 cents per share.
In What Months Does Dominion Pay Dividends?
Dominion Energy dividends are paid on or around the 20th day in the following months: March, June, September, and December.
When Is The Ex-Dividend Date For Dominion Stock?
For an investor to receive Dominion’s next dividend payment, they need to complete their purchase of Dominion stock by the ex-dividend date.
At the beginning of the article, I mentioned that Dominion’s dividend growth has been impressive. So let’s put some numbers behind that next.
Dominion Stock Dividend Growth Rate
|1 Year||3 Years||5 Years||7 Years|
The historical trend of dividend increases has been impressive. In contrast, for 2020, Dominion announced its dividend would increase by only 2.5%.
Dominion Dividend History
I was disappointed with the last dividend increase. But on a more positive note, management has increased the Dominion dividend for 17 consecutive years.
We will take a look at the business fundamentals in a moment. They may explain why the latest dividend increase was below trend.
But first a quick review about what we have learned about the Dominion Energy Dividend.
What Has Made Dominion Energy Stock A Good Investment?
Hopefully, you are starting to see why Dominion Energy has been one of my favorite dividend stocks. Specifically,
- Dividend yield of approximately 5%
- 8-9% annual dividend growth over the past 7 years
- 17 consecutive years of dividend increases
Related: Duke Energy dividend stock analysis
Let’s move on to the business fundamentals now. They will tell a story of slowing Dominion dividend growth.
Dominion Energy Historical Revenue Trend
Until 2019, revenue held in a pretty tight range. This is typical for a regulated utility stock.
In contrast, since 2018, revenues are increasing by a sizeable amount. This is partly due to the acquisition of SCANA that closed early in 2019.
Okay. So far, so good. It’s great to have a growing revenue stream. But, what do earnings look like?
Dominion Stock Dividend Payout Ratio & Earnings Per Share
Earnings per share have grown over the long run as the company invests in capital improvement projects. The cost of these projects plus a profit margin is then passed on to their customers. This is the essence of a regulated utility business model.
But, the dividend payout ratio is high. It is projected at more than 90% of
A lower dividend payout ratio is usually better for the investor. It allows the company to maintain the dividend during difficult times. Or increase it even when earnings are not growing.
Regulated utilities typically have higher dividend payout ratios. But Dominion’s dividend payout ratio is clearly getting too high for management to tolerate.
Here’s how I know…
Dominion Dividend Policy & Projected Dominion Dividend Growth
In a recent letter to shareholders, the chairman, and CEO of Dominion Energy, Thomas Farrell said this:
To be more in line with peer utility companies, the Board of Directors and management plan to change our dividend growth rate to about 2.5 percent per year. Over time, this action would migrate us to a low-70s payout ratio.
Wrapped up in that comment is a clear cut dividend growth policy statement. It provides support for my long term Dominion stock dividend growth forecast of 4.0%.
Why 4.0%? Because I expect earnings to grow 4-6%. Once the dividend payout ratio is reduced to management’s target in the next few years, then higher dividend growth can resume in line with earnings growth.
Dominion Energy Credit Rating & Balance Sheet
Moody’s and S&P rate Dominion long term bonds Baa2 and BBB, respectively. Their ratings represent “investment grade moderate credit risk” evaluations.
Also, Dominion’s debt to equity ratio stands at 1.1 times.
Dominion is like other utility companies. They are very capital intensive and need both debt and equity financing to support their business and grow.
Dominion’s balance sheet and financial position are acceptable to me. It is in line with other regulated utilities.
Dominion Dividend Safety
Taking into account Dominion’s dividend metrics, business fundamentals, and financial position, I judge Dominion’s dividend to be safe. When I say safe, I mean it is unlikely to be reduced in the foreseeable future.
The Utility Forecaster investment newsletter covers utility stocks very closely. They give the Dominion dividend a safety score of 5 out of a possible 8.
Dominion Stock Valuation
Let’s look at Dominion stock value from several different angles.
Dominion Dividend Discount Model
First, let’s use a single-stage dividend discount model to calculate a fair value for the Dominion stock price. The model considers several of the factors discussed thus far. Specifically,
- Current dividend payment – $3.76 per share
- My estimated long term dividend growth rate – 4%
- My desired annual return on investment – 9%
Using these assumptions, the Dominion dividend discount model calculates the fair value at $77 per share.
Morningstar Fair Value Estimate of Dominion Stock
The investment research company, Morningstar, estimates the fair value of Dominion stock at $84 per share.
Utility Forecaster Investment Newsletter
Utility Forecaster has a buy limit price on Dominion stock at $88 per share.
Dominion Stock Price To Earnings Ratio
Finally, the Dominion stock price to projected 2020 earnings sits at about 20 times. This is not cheap, but also not significantly overvalued.
To compare, the S&P 500 forward price to earnings ratio for 2020 stands at about 23 times. But realize S&P 500 earnings estimates for 2020 are very uncertain right now.
Finally, Dominion’s price to earnings ratio sits at about the mid-point of other regulated utility stocks that I analyze. Those utility stocks range from 15 times to 28 times earnings for 2020.
Dominion Energy Stock Forecast
I’ve used several different valuation methods for Dominion stock. They indicate to me that Dominion stock is trading near its fair value right now.
With 5% projected earnings growth, I could see Dominion stock trading in the low 100’s in the next 5 years. Couple that share price appreciation with a 5% dividend yield and an investor has potential for a 10% total return.
Of course, nothing is guaranteed. Do your research and invest at your own risk.
Dominion Stock & Dividend Analysis Wrap Up
Here are a few take away points from this analysis of Dominion stock and the Dominion dividend:
- Attractive dividend yield near 5%
- Slow dividend growth for the next several years of 2.5%
- 4% projected longer-term dividend growth
- A stock price trading near fair value
- Not the powerful combination of high dividend yield and high dividend growth it used to be
- Potential for 8-10% long term total returns
Dominion stock is one of my largest holdings. It was one of my original purchases when I established my dividend stock portfolio more than 15 years ago. It has been a rewarding dividend growth stock investment.
Because of its size in my portfolio combined with slowing Dominion dividend growth, I won’t be adding to my shares at this time. And, I have set my personal buy target at $75 per share, or less. That Dominion stock price would provide a 5% dividend yield.
Further Reading About Dividend Stocks Like Dominion
- Southern Company stock and dividend analysis
- Wisconsin Energy Group: A slow & steady stock
- AEP: one of the most consistent stocks for investment dollars
- Higher-income dividend stock alternatives
- How to invest in utility stocks
Disclosure & Disclaimer
This article, or any of the articles referenced here, is not intended to be investment advice specific to your situation. I am not a licensed investment adviser, and I am not providing you with individual investment advice. The only purpose of this site is information & entertainment. We are not liable for any losses suffered by any party because of information published on this blog. See this site’s Disclaimer and Privacy tab for more information.