This article is about Dominion Resources Inc. (NYSE:D) and why it's income and dividend growth company that is being reviewed by The Good Business Portfolio. Dominion Resources, Inc. is a holding company and is a producer and transporter of energy. The Company is a provider of electricity, natural gas and related services to customers in the eastern region of the United States. Fundamentals of Dominion Resources Inc. will be looked at in the following topics, The Good Business Portfolio Guidelines, Total Return And Yearly Dividend, Last Quarter's Earnings, Company Business Overview, and Takeaways And Recent Portfolio Changes.
Good Business Portfolio Guidelines.
Dominion Resources Inc. passes 9 of 11 Good Business Portfolio Guidelines. These guidelines are only used to filter companies to be considered in the portfolio. For a complete set of the guidelines, please see my article "The Good Business Portfolio: Update To Guidelines and July 2016 Performance Review". These guidelines provide me with a balanced portfolio of income, defensive, momentum, total return, and growing companies that keeps me ahead of the Dow average.
Dominion Resources Inc. is a large-cap company with a capitalization of $47.8 billion. The nearest company in size for the Integrated Gas and Electric Distribution sector is about $23 Billion half the size of Dominion. So Dominion has the muscle to weather the storm when it comes. Earnings flow covers the dividend but does not leave much left for the company's expansion plans.
Dominion Resources Inc. has a dividend yield of 3.1% and its dividend has been increased for 10 of the last ten years a excellent record. The payout ratio of the dividend is high at 85% over 5 years. The dividend is above average for the market. Dominion Resources Inc. is therefore an income and dividend growth long term investment.
Dominion Resources Inc. last quarterly earnings is improving at $0.96/share which leaves Dominion Resources Inc. fair cash flow, allowing it to pay its above average dividend and have some left over for its continued business expansion. The average dividend payout ratio over the last 5 years is 85%, a bit high and requires the company to raise debt for its expansion plans.
I also require the CAGR going forward to be able to cover my yearly expenses. My dividends provide 3.1% of the portfolio as income and I need 1.9% more for a yearly distribution of 5%. Dominion Resources Inc. has a three-year CAGR of 8% more than meeting my requirement. Looking back five years $10,000 invested five years ago would now be worth over $19,300 today (from S&P IQ). This makes Dominion Resources Inc. a good investment for the income and dividend growth investor at a lower price.
Dominion Resources Inc. S&P Capital IQ rating is two star or sell with a target price of $65. Dominion Resources Inc. is then over priced by 18% at present and a good choice for the patient investor that can wait for a better price around the target $65.
Total Return And Yearly Dividend
The Good Business Portfolio Guidelines are just a screen to start with and not absolute rules. When I look at a company, the total return is a key parameter to see if it fits the objective of the Good Business Portfolio, the total return guideline was just added to my list of guidelines. Dominion Resources Inc. did much better than the Dow baseline in my 42.7 month test compared to the Dow average. I chose the 42.7 month test period (starting January 1, 2013 and ending to date) because it includes the great year of 2013, and other years that had fair and bad performance. Modeling the Dow average is not an objective of the portfolio but just happened by using the 11 guidelines as a filter for company selection. The good total return and high dividend makes Dominion Resources Inc. a company a choice for the income and dividend growth investor. The dividend has been increased for ten of the last ten years. DOW's 42.7 month total return baseline is 41.49%. The total return during the test period for Dominion Resources Inc. is above the DOW average at 61.53% beating the DOW baseline by 20.04%.
Dow Baseline 41.49%
42.7Month total return
Difference from DOW baseline
Yearly Dividend percentage
Dominion Resources Inc.
Last Quarter's Earnings
For the last quarter on May 4, 2016 Dominion Resources Inc. reported earnings that beat expected earnings at $0.96 compared to last year at $0.99 and expected at $ 0.94. Revenue was lower at $2.9 Billion down from last year of $3.4 Billion. This was a fair report showing some improvement from the same quarter of 2015. Earnings for the next quarter will be out in early August and is expected to be $0.72 compared to last year at $0.73 Dominion Resources Inc. guided there total earnings for 2016 to $3.60-$4.00 enough to cover the dividend with a bit left over.
Dominion Resources Inc. is engaged in the production and transporter of energy. The Company is a provider of electricity, natural gas and related services to customers in the eastern region of the United States. The Company operates through three segments: Dominion Virginia Power (NYSEARCA:DVP), Dominion Generation and Dominion Energy. What is important for me is that Dominion Resources Inc. is growing the business in renewable energy. Their goal by 2020 is to add 400MW (Mega Watts) in Virginia of solar energy production, with 80 MW to be completed in 2016. They are also expanding pipelines and infrastructure to further increase their energy supply business. In order to do this they are increasing their debt which is alright now with low interest rates but will really hurt when rates start to rise. I don't believe the FED will raise rates this year until we know who wins the Presidential election, so the risk going forward is at hand. One of my guidelines is would you buy the whole business if you could, right now I would not buy Dominion Resources Inc. right now but will watch it if the stock price gets a bit lower at about the $64 point.
Takeaways and Recent Portfolio Changes
Dominion Resources Inc. is a good investment for the income and dividend growth investor but at a lower entry price of $65 price. Dominion Resources Inc. will not be considered for The Good Business Portfolio right now but will be watched for a better entry price.
Sold small position of spin off Fortive (NYSE:FTV) to keep number of positions at 25 or less.
Trimmed Cabela's (NYSE:CAB) from 5.5% to 5.3% just took a little off the table since nothing has been said lately about the buyout.
Sold some CAB covered calls, sold August $55's. If the premium gets to 20% of the sold premium price, I will buy them back with the hope that CAB goes up so I can sell the calls again in the same month for a Double.
Sold some covered calls on Harley Davidson (NYSE:HOG), sold August 50's. If the premium gets to 20% of the sold premium price, I will buy them back with the hope that HOG goes up so I can sell the calls again in the same month for a Double.
The Good Business Portfolio generally trims a position when it gets above 8% of the portfolio. Below are the six top positions in The Good Business Portfolio. Johnson and Johnson (NYSE:JNJ) is 8.7% of the portfolio, Altria Group Inc. (NYSE:MO) is 8.0% of the portfolio, Home Depot (NYSE:HD) is 7.8% of portfolio, Boeing (NYSE:BA) is 7.8% of the Portfolio, Eaton Vance Enhanced Equity Fund II (NYSE:EOS) is 6.9% of the Portfolio and Walt Disney (NYSE:DIS) is 6.6% of the portfolio, therefore MO and JNJ are now in trim position with Boeing, Home Depot, Eaton Vance equity Fund II and Walt Disney getting close. Boeing is going to be pressed to 10% of the portfolio because of it being cash positive on individual 787 plane costs, announced in the 2015 fourth quarter earnings call. JNJ will be pressed to 9% of the portfolio because it's so defensive in this post Brexit world.
For the total Good Business Portfolio please see my recent article on Good Business Portfolio: 2016 first-quarter earnings and performance for the complete portfolio list and performance. Become a real time follower and you will get each quarters performance after the earnings season is over.
I have written individual articles on CAB, JNJ, EOS, GE, IR, MO, BA, AA, Omega Health Investors and HD that are in The Good Business Portfolio and other companies being evaluated by the portfolio. If you have an interest please look for them in my list of previous articles.
Of course this is not a recommendation to buy or sell and you should always do your own research and talk to your financial advisor before any purchase or sale. This is how I manage my IRA retirement account and the opinions on the companies are my own.
Disclosure: I am/we are long BA, CAB, DIS, EOS, HD, HOG, JNJ, MO.
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.