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Dominion Hikes Dividend Rate

Zacks Equity Research

The board of directors of the electric utility Dominion Resource Inc. (D) has approved of an increase in the annual dividend rate by 15 cents or 6.7%. The revised quarterly dividend of 60 cents will be paid to the shareholders in Mar 2014.

After the hike, the annual dividend will come to $2.40, with a dividend yield of 3.75%, higher than the industry average of 2.10%. The company aims to disburse up to 60% to 70% of its normalized earnings as dividends.

The systematic investments made by the company to develop its infrastructure have started to yield positive returns. Dominion expects 80% to 90% of its future earnings to come from its regulated businesses, which assures a steady source of income for the company.

The decision to form an MLP, export natural gas from the Cove Point LNG facility and the Blue Racer Midstream joint venture put the company in a solid position. We believe these initiatives will further boost Dominion’s earnings. Given the strong fundamentals, it is not overtly ambitious for shareholders to anticipate another dividend hike in 2014.

Dominion Resource continues to generate strong cash flow. In the first nine months of 2013, cash flow from operating activities was $2.95 billion, with $0.97 billion used for dividend payouts. We believe the cash flow generation capability will enable the company to meet its increased dividend payment obligation.

True to the defensive nature of all utilities, a few others have also recently hiked their annual dividend payouts. OGE Energy (OGE) hiked its annual dividend by 6.5 cents or 7.8% while American Electric Power (AEP) raised its annual dividend by 4 cents or 2%.

Dominion Resources has a Zacks Rank #3 (Hold). A better ranked stock in the utility sector is Westar Energy, Inc. (WR) carrying a Zacks Rank #1 (Strong Buy).

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