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Dividend investing, dividend growth investing, long only, long-term horizon
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Summary

  • Shares in D have doubled in the past five years, which has caused the dividend yield to drop to only 3.54%, well below the industry average.
  • D is more expensive than its competitors both on a P/E and P/S basis.
  • Payout ratio of 88.75% is very high. The dividend growth will be limited by EPS growth.
  • I'm staying on the sidelines for now, waiting for a better entry point.

Shares in Dominion Resources (NYSE:D) have gone up by 14.05% in the past 12 months, outperforming the S&P 500 by a small margin. Over the past five years, shares in Dominion have doubled, though the dividend hasn't grown at the same pace, reducing the dividend yield significantly. The company currently pays its shareholders a quarterly dividend of $0.60 per share, which provides us with a forward dividend yield of 3.54%, which is quite low considering the industry average stands at 4.1%.

D data by YCharts

Dominion's revenues in the most recent fiscal year were $13.12 billion, which gives the company a price to sales ratio of 3.0. Analysts expect the company's revenue to grow by 2.2% and reach $13.41 billion in the current fiscal year which means the forward P/S ratio stands at 2.9. I consider this to be very high, not just because the industry average stands at only 1.4, but also because it's far above Dominion's five-year average P/S ratio of 2.1.

D Normalized Diluted EPS ((TTM)) data by YCharts

Dominion has paid out 88.75% of its earnings in the form of dividends over the past 12 months. This is a payout ratio I consider to be quite high, especially considering the fact the dividend yield is still well below the industry average. Earnings per share in the most recent fiscal year were $3.25, which puts Dominion's price to earnings ratio at 20.9, well above the 18.4 industry average P/E ratio. Average analyst expectations for EPS in the current fiscal year stand at $3.51, which is 8% higher than last year's. Considering the already high payout ratio I wouldn't expect the dividend to grow at a higher pace than EPS. An 8% dividend increase would put the dividend at $0.65 per quarter which at the current price per share of $67.85 would yield 3.83%, which is still well below the industry average. Dominion's five-year dividend growth rate stands at 7.33%.

Conclusion:

Dominion's dividend yield is well below the industry average, and with a payout ratio of 88.75%, I wouldn't expect it to grow at a higher pace than EPS. Looking at the price to earnings and price to sales ratios, we can see it is valued at a premium to its competitors. Shares in the company have doubled over the past 5 years, which is great news for anyone who's owned shares for half a decade or more but is not too positive for those hoping to establish a position at current prices. I will be staying on the sidelines for now. However, should the stock make a significant dip in share price, I might reconsider.

Source: Why I'm Not Buying Dominion Resources At This Price