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Summary

  • D is among Citi Equity Research Bond Refugees.
  • D trades at a premium to the S&P 500 and similar utilities.
  • D dividend is stable but more attractive bond refugee stocks make it a hold.

Recently Citi Equity Research released an update list of global bond refugee stocks. Stocks with higher dividends ands lower volatility an alternative to bond investments. Among companies making the cut is Dominion Resources (NYSE:D) with a current dividend yield of 3.4%. In part I we highlighted Philip Morris International (PM)

D operates in the utility industry making it a natural another natural fit for the high dividend and low volatility list.

D is an energy production and transportation company. Dominion Virginia Power is a regulated electric transmission and distribution company in Virginia and North Carolina. D's generation segment is an electrical generation and engages is price risk management activities. D's natural gas segment is engaged in natural gas distribution, transmission, pipeline, storage, and gathering.

D By the Numbers

D

S&P500

Premium/Discount

AEP

Premium/Discount

Market Cap ($B)

41.10

NM

 

25.2

 

Enterprise Value ($B)

63.64

NM

 

44.3

 

Dividend Yield (%)

3.40

1.99

70.9%

3.9

-12.8%

Valuation Metrics

     

Trailing P/E

24.11

17.61

36.9%

17.02

41.7%

Forward P/E

18.85

15.44

22.1%

14.91

26.4%

EV/EBITDA

13.29

NM

 

8.95

48.5%

Dividend Sustainability

     

Debt to EBITDA

4.81

NM

 

3.97

21.2%

Payout Ratio

77%

  

64%

 

Price to Book Value

3.57

  

1.59

124.5%

Source Yahoo Finance & Wall Street Journal

     

Valuation

D has a market capitalization of $41.1 billion and an enterprise value of $63.6 billion. D trades at a premium to the S&P 500 valued on an earnings basis with a trailing PE of 24.1, a 71% premium to the S&P 500 (NYSEARCA:SPY) multiple of 17.6. D earnings premium is expected to narrow as the shares trade at 18.9 times forward earnings versus a 15.4 for the S&P 500.

D's EV is 13.3 times trailing EBITDA, which is higher than similar electric utility American Electric Power. (NYSE:AEP) D is more expensive than AEP on an earnings basis, albeit with more earnings growth expected on a forward basis.

(click to enlarge)

Dividend Stability

D has increased the dividend annually since 2005. D current pays out 77% of earnings and has a debt to EBITA ratio of 4.8. D's earnings payout is relatively high and its debt to EBITDA is above competitor AEP. However, D's presence in the regulated electric utility space it is unlikely to see a cut but may present challenges for significant increases compared to other bond refugee stocks. We recommend D as a bond refugee HOLD.

Disclosure: I am long PM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Dividend Winners: High Yields And Low Volatility Part II: Dominion Resources