Dominion Energy Is About To Offer An Almost 9-Year High Dividend Yield

Dominion Energy (D) has dramatically underperformed the market in the last two years. During this period, the stock has lost 1% whereas the S&P has rallied 35%. Consequently, the stock has been out of favor with investors. However, income-oriented investors should realize that the stock is about to meaningfully raise its dividend and thus offer an almost 9-year high dividend yield of 5.0%. Even better, it is likely to offer generous dividend hikes in the years ahead. Therefore, investors should put the stock on their radar.
The reasons behind the underperformance
The main reason for the vast underperformance of Dominion is the environment of rising interest rates. Most shareholders of utilities hold their shares for their generous dividends. However, as the Fed has been raising interest rates at an aggressive pace in the last two years, investors can now find decent yields elsewhere. As a result, the dividends of utilities have become less attractive and hence their valuation has come under pressure. In fact, utilities, MLPs and REITs are the most vulnerable stocks to rising interest rates.
Apart from pressuring the valuation of utilities, rising interest rates also have another negative impact on utilities. They increase the interest expense of these companies, which generally carry high debt loads. This is true for Dominion, which has almost doubled its net debt (as per Buffett, net debt = total liabilities - cash - receivables), from $34.3 B in 2012 to... Read more

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