Dominion: Reduced Uncertainty And A Dividend Hike Make It A Buy

After months of uncertainty and two changes to the offer to win over South Carolina regulators, Dominion Energy's (NYSE: D) acquisition of SCANA (NYSE: SCG) has closed. The uncertainty surrounding MLP tax advantages for Dominion Midstream Partners (NYSE: DM) is close to being resolved with an all-stock deal to buy out the units it doesn't own. Only issues with the Atlantic Coast Pipeline remain unresolved. This reduced uncertainty makes it easier to determine how safe the dividend is. Coupled with the recent 9.9% increase in the dividend, this increased certainty in cash flow makes the current price of Dominion Energy an opportunity for dividend growth investors to pick up shares at a good value.
What did I think last time?
I last wrote about Dominion Energy on August 10, just after the company released its Q2 earnings report. It was a good quarter as earnings came in 6 cents above the top of the guidance range. The market however reacted negatively to the lower guidance for Q3 even though the full-year guidance was maintained. I thought the resultant price drop made for a good opportunity to pick up shares.

I was very conservative in my dividend growth projection using a 3.6% CAGR for the next five years even though the management is saying the dividend will increase around 10% over the next couple of years. Also because of issues with Cove Point, SCANA, the Atlantic Coast Pipeline and the DM roll-up, I wanted an extra 20% discount to the NPV of the... Read more