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Dominion Energy puts the brakes on dividend growth



<p class = "canvas-atomic text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = " Dominion Energy ] (NYSE : D) is one of the largest tools in the US The generous 4.7% return is at the high end of the tool's return spectrum and well above the average return of around 3%, measured by Vanguard Utilities ETF But it is a big change that takes shape on the payout front of Dominion Energy that income investors need to know about, and it is important to understand why the company has made this tough yield data-response = "1
1"> Dominion Energy (NYSE: D) is one of the largest tools in the US The generous 4.7% yield is at the high end of the utility yield spectrum and well above the average yield of around 3%, measured by Vanguard Utilities ETF But there is a big change that takes shape on the payout front of D ominion energy that income investors need to know about, and it is important to understand why the company has made this tough profit.

A great record

Dominion Energy has increased the dividend annually for 16 consecutive years. Before moving on, know that it does not intend to break that stretch. The dividend growth over the last decade has on average been just under 8% a year. More recently, dividend growth has been about 10%.

The word "dividend" with a yellow line heading sharply higher under it

Image source: Getty Images.

<p class = "canvas expertise canvas text Mb (1.0em) Mb (0) – Sm Mt (0.8em) – Sm" type Dominion projects that the yield will decrease to around 2.5% by 2020 and remain at that level in at least some years. To be fair, it is enough to keep up with the latest low inflation growth. As long as inflation does not cross up to historical averages ( closer to 3% ) or higher, the acquisition of Dominion's dividends will continue to grow over time. With such high dividends compared to peers, it is difficult to complain too much if you want to generate as much income as possible from your portfolio today. & nbsp; & nbsp; "data-response time =" 35 "> This level of growth is over. Dominion states that the dividend will drop to around 2.5% by 2020 and remain at that level for at least some years. Keep up with the latest low inflation growth, as long as inflation does not cross the historic average (close to 3%) or higher, the acquisition of Dominion's dividends will continue to grow over time, and with such high dividends over peers, hard to complain too much if you want to generate as much income as possible from your portfolio today.

But you can't go in here or hold if you already own Dominion stock, without asking, "Why the sudden The return is not good. "The answer is not good, but it is not so bad.

Attaching a disconnect

<p class =" canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em ) – sm "type =" text "content =" Dominion has moved provide for a number of years, I moved ts virkso more and more towards assets with regulated businesses or fee-based structures. There has been a lot of movement in the portfolio, including the sale of assets and acquisitions. In fact, 2018 and 2019 were quite active years, with Dominion buying smaller, economically troubled tools SCANA and buying their controlled midstream partnership (both agreed last year but completed in 2019) . & nbsp; "Data-Reaction =" 38 "> For several years, Dominion has shifted its business, moving its business more and more towards assets with regulated businesses or fee-based structures, and there has been a lot of movement in the portfolio, including the sale of assets and acquisitions. and 2019 quite active years, with Dominion buying smaller, economically troubled tools SCANA and bought their controlled midstream partnership (both agreed last year but completed in 2019).

<p class = "canvas-atom canvas text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm "type =" text "content =" At this time, in addition to a relatively high yield, Dominion also has relatively high influence over peers. With debt to EBITDA at around 6.4 times by the end of the first quarter, it sits easily on top of the industry. It alone is something to worry about, but now adds that Dominion's payout ratio has increased from 70% range as late as 2016 to what is expected to be nearly 90% in 2019. The average rate of utilization is in day about 70%. In addition to a relatively high yield, Dominion also has relatively high influence over peers. With debt to EBITDA of around 6.4 times at the end of the first quarter, it is easily in the upper end of the industry. It alone is something to worry about, but adds that Dominion's payout ratio has increased from 70% in 2016 to what is expected to be nearly 90% in 2019. The average for the utility room today is about 70%.

<h3 class = "canvas-atom canvas text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Utilization is a problem for Dominion Energy
" data-response time = "40"> Utilization is a problem for Dominion Energy

D Financial debt to EBITDA (TTM) Diagram

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = " D Financial Debt to EBITDA (TTM) data from YCharts Data Reaction Time =" 57 "> D Financial Debt to EBITDA (TTM) Data by YCharts

Dominion Reduces its dividend growth basically to around 2.5% to create some economically breathing space (it wants to maintain its investment worthy credit rating) and bring the payout rate back to 70% range, the latter target taking something n years to achieve, as dividend growth is expected to be about half of the company's forecasted 5% earnings growth. Note that the tool has $ 26 billion in capital growth plans between 2019 and 2023 to reverse the growth, so that 5% looks like a reasonable projection. But pushing the proceeds up to half of this amount means getting to the 70% range will be a slow and stable process – not a success overnight. (Getting this done overnight would mean a dividend cut, and investors generally prefer to avoid them.)

Finally, Dominion is slowly pulling dividend growth to ensure it's still a major revenue item. Relatively high influence combined with a high and still growing payout ratio is a recipe for dividend yield if something does not change. Management is proactively changing the dividend growth now, so that it can secure revenue investors, who have come to rely on the tool's return on investment, will not be disappointed later.

Not good news but not bad

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "For investors who own Dominion especially because of the cool yield growth in recent years, a decline in dividend growth means you have to re-evaluate the investment. Another higher growth company, as NextEra Energy may be a better choice today As said, for those interested in maximizing the income they generate from their portfolios, Dominion is still a solid option, high returns, slow and stable growth forecasts (for dividends and earnings) and clear targets for strengthening its ability to pay dividend by lowering the payout ratio should be seen as a long term positive. "data-reactid =" 61 "> For investors who own Dominion, especially due to rapid growth in growth in recent years, the decline in the dividend rate means you have to rethink the investment. Another company with higher growth, like NextEra Energy, may be a better choice today. That said, for those interested in maximizing the income they generate from their portfolios, Dominion is a solid option. The high returns, slow and stable growth forecasts (for dividends and earnings) and a clear goal of strengthening their ability to pay dividends by lowering the payout ratio should be seen as long-term positive.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = " More from Motley Fool "data-response time =" 62 "> More from Motley Fool

<p class =" canvas-atom texttext Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm "type = "text" content = " Reuben Gregg Brewer owns shares of Dominion Energy, Inc. Motley Fool recommends Dominion Energy, Inc and NextEra Energy. Motley Fool has a disclosure policy . " data-reactid = "70"> Reuben Gregg Brewer owns shares of Dominion Energy, Inc. Motley Fool recommends Dominion Energy, Inc and NextEra Energy. Motley Fool has a revealing policy.


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