Lanny’s Recent Stock Purchase – Dominion Energy (D)

I couldn’t hold back any longer.  Time to take the thinking of making a purchase and, instead, just buying when the metrics are right.  The metrics were right for me in this instance.  A few days ago, I made my second dividend stock purchase of the year and it was a “safer” play, some may say.  Let’s just say, the winter has been very, very cold this year and that usually means larger than normal gas bills.  I decided to buy a dividend stock, that will help offset those utility bill increases!  Let’s see what dividend stock I purchased to warm up the portfolio.

The Stock Purchase – Dominion Energy (D)

Simply put, Dominion (D) is a producer and transporter of energy.  This includes natural gas, electricity and the like.  When the temperatures in Ohio have been as low as they have been, Dominion charges me more to keep this house warm!  What better way to reduce that impact, than the own the stock from a company that you are paying, each month.  Their market cap is approximately 47-48 billion and they recently announced a massive acquisition of Scana (SCG) for $8B!  Further, they were one of those, “increasing their dividend, out of nowhere”, companies.  In January, which is not their typical month to increase (it is typically October), they announced an 8.4% increase to their dividend.  The increase was from $0.77 per share, per quarter to $0.835 per share, per quarter.

Why else did I buy them?  Year-to-date, their stock price has fallen over 10%.  Let’s just say that they were trading below their stock price before their first dividend increase announcement back in October.  So the scenario here is two dividend increases at a lower price, sounds like something I needed to look into!  Therefore, they had two dividend increases in three months, dropped over 10% since the first of the year and they are a utility that I use throughout the year.  What about their stock metrics?  Let’s place them through the dividend diplomat stock screener,

Dividend Diplomat Stock Metrics

1.) Price to Earnings (P/E) Ratio – One of my favorite metrics.  From reviewing analyst reports, for 2018, they expect (on average) earnings per share to be $4.04.  The price point of my purchase was $73.29.  Therefore, the P/E ratio was 18.14.  Not incredible, I know, but not above the average stock market of the low-to-mid 20’s that the valuation is currently at.  Were there other form of bargains?  Yes.  Keep in mind – these earnings are dragged down by one-time merger-related expenditures.

2.) Dividend Yield – Dominion currently pays $3.34 per year or $0.835 per quarter.  At the time of purchase, the yield calculated out to be 4.56% (dividends divided by share price).  This is far above my average dividend yield in my portfolio, by a long shot.  Very strong yield, I may say.  However, most utility companies are typically higher yielders, as dividend growth is not as promising/strong.  Therefore, you trade current yield for lower growth rate.  Thinking back in October, when their dividend was $0.755, or below 4%.  Things def. looked better at the time of my purchase.

3.) Dividend Growth Rate – Big D has been increasing that dividend for over 14-15 years!  I love that longevity and it is one of the big reasons why I made an investment in them.  Due to the January dividend increase, it’s a little harder to figure out what the true dividend growth rate is.  However, their 3 year average is over 8% and their 5 year average growth rate is around 7%.  A very solid growth rate, that I expect to slow with the acquisition, but I don’t mind being surprised.  See why the dividend growth rate is extremely powerful.

4.) Dividend Payout Ratio – As discussed in #3, this is important if D wants to hop back on the saddle to grow dividends again.  The dividends paid per year amounts to $3.34.  From #1, their expected earnings for 2018 is $4.04.  The dividend payout ratio equates to 83% (3.34/4.04).  What does this mean to me?  Obviously this is outside my 60% window.  Earnings are dragged by merger expenses.  Utility companies typically have a higher payout ratio.  This supports my conclusion that dividend growth may not be strong in the future, pending how accretive to earnings the acquisition is.  Below 100%, yes, but they need to tear the cover off the ball.  Here is to hoping the analysts didn’t build in the lower tax rate!

To show proof of the purchase:

I purchased $2,000 worth at $73.2929 per share for a total of 27.2878 shares, with a $0.00 trading fee (love free trades).  This added $91.14 to my forward dividend income.  This is a new position in my portfolio and brings up my weight in utilities.  Every year, at least, will pick me up 1 new share of Dominion with dividend reinvestment.  Very excited on this add to my my portfolio!

Dominion Energy (D) Stock purchase summary & conclusion

Loving the new add, the jolt to my taxable dividend income portfolio and the safety net of a utility company.  The metrics were solid, dividend yield was pleasing to see and they have the long history of dividend increases, that I continue to expect them to keep.  I am very interested in how the merger will impact their financial statements starting in 2019 and will be curious what earnings per share looks like each and every quarter this year.  Also, glad to just make a purchase and add some forward dividends, of course!

Now onto the readers, what do you think of this dividend stock purchase?  Do you like it?  Are you staying away from companies impacted by interest rates?   Staying away from utility companies?  Know better one’s out there, that currently have better metrics that fit your appetite?  I appreciate the feedback and insight you have on this investment decision!  Thank you again, everyone, good luck and happy investing!

-Lanny

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29 thoughts on “Lanny’s Recent Stock Purchase – Dominion Energy (D)

  1. Dominion took a hit when it purchased Scana. Now the Utilities along with REITs are going down because of rates. I think this is a great time to purchase this strong Utility company. No Fear! Nice pickup!

  2. Great buy Lanny. I have been looking at adding to my utility exposure as well. With interest rates going up, utilites will be going down so now is a great time to buy. I currently hold SO but I will be looking into D also. Thanks for sharing Lanny.

  3. Nice review, been reading for a while thought I’d drop a line…I’m based in UK so the actual companies you review aren’t of massive interest to me… but the way you review them, the analysis and thoughts plus coupled with the enthusiasm keep me coming back to check in!

    keep it up and thanks 🙂
    Brian

    • Tom –

      I like the call out, from the dividend growth front, makes sense and they definitely have a better growth outlook on their divvy. Really eager to see, once the acquisition closes, what impact they truly will have on earnings.

      -Lanny

  4. I like the purchase, D offers a nice yield with strong growth which is hard to find in the sector. I also have my eye on PPL which has been hammered down to a 6% yield along with 4-5% dividend growth forecast for the next few years.

  5. Your opening line is so true. I think we all over think our buys at times and in a sense feel afraid to pull the trigger at any point in time no matter how good the metrics are. Fortune favors the bold and sometimes you just have to go for it after all the prep work has been done. Like the D pick up. D, SO and ED are still my fav. utes for now though PPL is looking a lot more compelling these days. Record highs in the market means nothing when utilities, REITs and many staples are on sale these days. Happy to be long with you in D!!!

    • Hut –

      You have the big guys on your list, that’s for sure. I love ED and SO, as well. Ah, too many to choose from. Looks like ED has starting to crawl back up, with D staying put over the last week, actually D went a few $’s lower. I just may be scooping up more. No emotion, just straight purchases. We can do this.

      -Lanny

  6. Great to see you pouncing on Dominion after having it on your watchlist in January! Looks like a fantastic investment from my perspective, having dropped a little more from when you first looked at it in January. I’ve just made my first purchase in a large Australian energy company which also pays great dividends (Woodside Petroleum), which is close to 10 year lows. Hope this one pays off well for you for many years to come!

    Cheers, Frankie

  7. I like the buy. I own some myself and it has been doing pretty well so far. They announced not too long ago that they were going to have bigger dividend growth for the next few years I believe which helps us out. I think the number was around 10% if I am not mistaken. And since it is a utility stock, the dividend yield is already pretty high.

  8. Lanny,
    I applaud you as a fellow, albeit, recent shareholder. D is my power provider, and they do a good job – even with the recent storms. Never had any problems with customer service ever. Also as a shareholder I see a ton of growth and they just upped the dividend again for this first calendar quarter. Utilities will likely get bashed, especially if rates rise in the US. Oddly, none of that will stop people from using electricity, utilities providing it, nor that cash flow from stopping. *Though I do prefer water utilities, but they’re usually at a big premium.
    – Gremlin

    • Gremlin –

      Glad to see a very happy customer and shareholder. I do agree on the water utilities, and yep – always in the mid-20 multiples. People need energy to function, it’s just a given and there’s no sign that will stop!

      -Lanny

  9. Loving it! Dominon is a great buy at the current prices with 4.5% yield and 8% dividend growth. I’m adding soon too, but first I’m buying more Enbridge stocks.

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