Known for its generous dividend yield, one of the largest utility company in the United States – Dominion Energy, is all set to lose its tag of ‘dividend growth machine’ as the company plans to slow down its dividend growth to ensure it remains a great income stock.
Sitting at the top end of the spectrum in terms of dividend yield compared to its peers, the company has an impeccable record of increasing its dividend annually for 16 consecutive years. Further, dividend growth of the company over the past decade has averaged just under 8% a year, but recently it has again gone back to around 10%.
Amidst such a scenario, the company has been recently seen projecting a massive slowdown in the dividend growth rate and expects the same to hover around 2.5% in 2020, and remain at that level for at least the next few years.
So, why the sudden brake in the dividend growth?
The reason behind such a move is basically the company creating some financial breathing space for itself, as it changes gear in terms of the business model. The company has been recently seen moving its business more and more toward assets with regulated businesses or fee-based structures. Off late, the company has undertaken a number of acquisitions like buying of smaller and financially troubled utility SCANA and acquiring its controlled midstream partnership to further widen its portfolio.
But all these acquisitions, despite a number of asset sales, has resulted in relatively high leverage for the company compared to peers. With a debt to EBITDA of ~6.4 times at the end of the Q1, Dominion easily sits at the top end of the industry.
Owing to the pressure of such high leverage, the company is likely to opt for a dividend cut as it seeks to maintain its investment-grade credit rating and to ensure a steady income flow for its investors.
The 10-day moving average for D crossed bullishly above the 50-day moving average on July 23, 2024. This indicates that the trend has shifted higher and could be considered a buy signal. In of 17 past instances when the 10-day crossed above the 50-day, the stock continued to move higher over the following month. The odds of a continued upward trend are .
The average fundamental analysis ratings, where 1 is best and 100 is worst, are as follows
a producer of electricity, natural gas and related services
Industry ElectricUtilities