Christopher C. Liu, Portfolio Manager
October 1, 2018
Dominion Energy (D) is a Virginia-based electric utility company with assets that include 26,000 megawatts of power generation capacity, 14,800 miles of natural gas pipelines, as well as 6,600 miles of electric transmission lines. We currently find Dominion Energy’s stock and dividend growth prospects to be attractive based on the strength of its management team’s conservative strategy.
For one, its regulated utility business Virginia Electric Power Company (VEPCO) derives a significant amount of rate rider treatment, which are additional charges or refunds that show up on customers’ energy bills to account for the difference between actual and estimated costs of electricity delivery; as a result, VEPCO enjoys above average returns on equity over 10%.
For another, management has in recent years guided the company’s strategy more towards utility infrastructure with strong competitive advantages – the Atlantic Coast Pipeline, of which Dominion is a 48% owner, is slated to deliver natural gas from the Marcellus and Utica shales to utilities in Virginia and North Carolina, and has been fully contracted for the next 20 years. In a similar vein, Dominion recently finished constructing a liquefied natural gas export facility to complement its Cove Point LNG import/regasification facility on the Chesapeake Bay, with capacity again fully contracted out to some of the largest utilities in Japan and India for the next 20 years.
Dominion Energy raised its dividend for the 15th consecutive year this past February, representing a 10.60% year-over-year increase. We believe the company will be able to grow its dividend by low double digits for at least the next couple of years, and that the stock is deserving of a significantly higher valuation.
