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SCANA Offers A Short-Term Reward If You Are Brave And Lucky

Mar. 05, 2018 8:24 AM ETSCANA Corporation (SCG)D22 Comments
Michael Wald profile picture
Michael Wald


  • SCANA's ultimate fate is still unclear 2 months after Dominion Energy's merger bid.
  • Excluding the impairment charge for the abandoned nuclear construction project, the company is financially healthy.
  • With its excellent dividend and possibility of its share rising in value, it offers short-term rewards for investors in 2018.

Two months after Dominion Energy (D) made an all-stock offer for SCANA (NYSE:SCG), the picture for SCANA and South Carolina’s state-owned Santee Cooper is no clearer, but there is at least a short-term opportunity for SCANA investors willing to take some risk and trust in luck.

South Carolina’s legislature looks no closer to deciding whether to approve or disapprove the SCANA merger with Dominion Energy. More likely, there will be no major political decisions until after the November governor’s election. Prior to that the rhetoric will fly but with a danger of alienating voters – either voters in favor of the current offer and those who believe it is inadequate – the safest route for politicians in the state is no action.

SCANA’s Board of Directors declared a regular quarterly dividend of 61 ¼ cents per share on the Company’s common stock for the quarter ending March 31, 2018. The dividend is payable April 1, 2018 to shareholders of record at the close of business on March 12, 2018.

The payment of dividends will be evaluated quarterly by SCANA’s Board of Directors and the dividend for the first quarter of 2018 is consistent with the quarterly dividend rate for 2017 and permitted by the terms of the merger agreement with Dominion Energy.

Assuming that no definitive action will happen before the state elections in November, SCANA will most likely continue to pay its current dividend through the remainder of 2018.

At the closing price of $39.65 as of March 2, that translates into a 6.18% yield, which is not a bad payment for investors while they wait to see what transpires in the state legislature.

Meanwhile, Dominion Energy’s offer of 0.669 share for each 1.0 share of SCANA remains on the table. That represents a 22% premium to Dominion Energy’s March 2 closing

This article was written by

Michael Wald profile picture
I am retired from the U.S. Department of Labor after a career that included 10 years as the U.S. Bureau of Labor Statistics's Southeast Regional Economist where I focused on U.S. labor markets. My main interest is in bonds, utility stocks, and REITS. Individual stocks and bonds are as much affected by the overall direction of the economy as the activities of individual firms, so when I focus on stocks, I include consideration of the political environment in which a company operates as much as on the company's financial situation. It is important to get underneath the top line data, as reported in the media, to really understand the direction of the economy. My goal is to provide knowledge and understanding of macro trends and add depth to the national statistics reported elsewhere.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (22)

I never wanted to be brave or lucky when I bought SCG in
2014. I just wanted income and Morningstar and all the others rated SCG a buy and good for growth in a conservative utility company. Now I am stuck with losses
although for the time being at least I have income.
This is a disgusting saga and extremely frustrating. I’m
holding the stock, collecting dividends. I also own D.
Moses1443 profile picture
Thank you for the solid piece.

I bought D on strength and longevity and recently bought SCG for the sheer sport if it, aka brave and lucky. Already enjoying a position in the green in Scana which I believe was pushed down too far price-wise, all things considered. I concur that this looks like a legacy acquisition by D mgmt. Regards, Moses
Michael Wald profile picture
I wish you well on your purchases. I think the key will be to closely watch both D and SCG and be ready to move quickly if the market changes.
Scana as an addition to Dominion makes sense and someone has to take it on. Hopefully, this won't be as protracted and convoluted as AT&T's attempt with Times Warber.
Time Warner.
Michael Wald profile picture
Well, if protracted you mean how many months, then I think there is a good case that the deal, if it goes through, will happen in December 2018 or early in 2019. That is longer than Dominion wanted, but politics being what it is, South Carolina has to get beyond November's governor election. Once the November election is out of the way, politicians can sign off on the merger if there is to be one depending on how many conditions are required of Dominion.
Yields4Travel profile picture
@ YCantIRetire, Thank you for the correction to Chairman Thomas F. Farrell II. I mixed up the chairman's name with Southern Company, Tom Fanning....Next time, I should do some fact checking before posting. Thanks again.
Yields4Travel profile picture
Michael Wald, I think you were long Scana in your previous articles. At what price did you sell and what was the reason for the sale?
Michael Wald profile picture
I sold SCANA at a small profit before its recent downturn in price. Since then it declined down to below $36 before now rising again and closing today at almost $41. I believe its current book value is about $36.74. As it trades nearer its book value with a +6% yield, it becomes attractive. At today's closing price it is getting to the top of what I would consider a buying opportunity. If the stock price moves higher so that the yield falls below 6%, it gets pricey in my opinion.

I think the Dominion offer is fair, and if I were assured that it would go through as originally outlined, I would buy and hold the stock as an opportunity to become a Dominion stockholder at a low entry price. That was my original plan. Unfortunately, the merger offer is facing more resistance within the state than I originally anticipated so I sold it.

Now it looks like the Legislature is not willing to make any decision until after the November elections. In my mind, that presents a speculative opportunity to buy the stock for its yield and keep it at least until October, at which point it might be time to sell if it looks like the Dominion offer will be rejected. Now that is a more speculative approach than just buy and hold until the merger is finalized.

Buying it at a price that results in a 6% yield can be profitable but you have to watch carefully that things don't suddenly take a turn for the worse with the stock.

I prefer buy and hold, and this is turning into more of a 2018 trading opportunity than a long-term commitment. I wrote the article specifically for folks who are more inclined to speculate and enjoy trading into and out of positions so it depends on your approach to investing and your comfort level with risk.

As I conclude in the article, you may not want to become too attached to the company, but if you are willing to take some risk, it could be an attractive play in 2018 at these levels.

I look forward to seeing other views and their opinions on the stock. Thanks.
Yields4Travel profile picture
Thank you Michael for the analytical response. I have held/continue to hold both Dominion Energy and SCANA for years. I am looking for a positive close to this drama. I am in no hurry to sell the SCANA shares unless Dominion pulls out or bankruptcy will be declared. I am beginning to think Fanning wants this deal as part of his legacy in Dominion's transformation.
YCantIRetire profile picture
That might have been a slip of the keys.

Could you have meant Thomas F. Farrel II?

Sen. Mike Fanning is building his own legacy with comments like, "Dominion is shaking in their boots". Not happening. They are having to continously scrape the cow pie they are steppng into with Scana and the S.C. mess off their boots.

He wants all possible offers laid out in front of him so he can choose. It doesn't work that way Sen. Due to screw ups in the BLRA, you have some voice. However..... uness you own shares, you don't own it. Does he have a plan to lay out in front of him where the State of SC buys Scana and it becomes part of Santee-Cooper? Then they would own all of the two failed Nuke plants. I don't think that plan is going forward.

Fanning said the deal had to be approved by SCANA and Dominion shareholders. He got the Scana part right, yet Dominion shareholders have no vote, except to stay or sell.
The Legislature in SC is in this up to their necks and are hoping, hoping , hoping that the electorate is to dumb to look at all the lobbying payments from SCANA that "convinced" them to authorize and approve the legislation to enable this deal in the beginning. Sooner rather than later they are going to figure out that if this goes on too long then the Feds will start looking at all the money that changed hands and even f they don't, the shareholder's attorneys most assuredly will. There is huge liability on all sides of this deal and in particular with the PSC that allowed the construction contract to occur without a payment and performance bond to secure Westinghouse Toshiba.
My question is how do you ‘trust in luck’. While I accept luck as being good fortune derived from the Dutch ‘lucken’, and pay little attention to luck deriving from ‘Lucifer smiling upon you’ , I can’t quite ‘trust’ luck.
Is there an option strategy that makes SCANA a possible investment strategy other than ‘trust luck’? If bankruptcy means the potential for near complete loss, the upside needs to be big, isn’t there a hedge that guarantees less loss and moderately lower returns as you bet on the upside? If the cost of the hedge is to great in relation to the perceived upside, what does that mean?
There has been a lot of talk about Scana filing for bankruptcy. I’m staying away from that.
Christopher Brady Morris profile picture
It would take a perfect storm for that to remotely happen, based on the recent moves out of South Carolina, I think the deal gets done with D in December and a compromise is worked out on the rates for the failed nuclear venture. Notice the approval was punted until AFTER the November elections.
This day and age people will say anything. They have an opinion about everything and are more ignorant than ever. If everyone is screaming BK and you run the numbers and they show no chance of bankruptcy, then all the better for you. Bonds are pricing in absolutely 0% chance of BK.
AutoTech profile picture
It's hard to handicap the BK probabilities, but Moody's has the bonds at Ba1 - Speculative.

I'm an D Long (via XLU, D) and not the least bit happy how things are going in South Carolina with this Nuc-Mess. I think the SEC's Enforcement Division will uncover some real dirt. If I were on D's BOD, I would have pursued NRG earlier (like David Tepper did) -- a better "sum of the parts", distressed buy. SCG is distressed as well, but over-valued, over-priced in the mid to upper 30's, high 40's.
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