Shares of Dominion Energy Inc (NYSE: D) lost 15.9% of their value in the first half of 2018, according to data provided by S&P; Global Market Intelligence. Causing the decline is uncertainty about the future of its MLP Dominion Energy Midstream Partners (NYSE: DM) and its acquisition target SCANA Corporation (NYSE: SCG).
In early January, Dominion Energy offered to buy beleaguered South Carolina-based utility SCANA for $7.9 billion in stock. The deal would help bail SCANA out of a failed nuclear project while bolstering Dominion's growth prospects. The state of South Carolina, however, now wants SCANA to pay the full price for that failed project, which is putting the deal with Dominion in jeopardy since it offered a lower settlement than what the state's seeking. Because of that, Dominion might opt to walk away from the deal.
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Meanwhile, in March, regulators ruled that MLPs could no longer collect an allowance for income taxes along with their cost of service fees on some pipelines. That rule change hit Dominion Energy Midstream Partners hard since it could earn less money on some of the pipelines it acquired from its parent. As a result, Dominion Energy might not be able to use its MLP as a financing vehicle in the future, which could impact its expansion plans. Instead, Dominion might have no choice but to acquire its MLP to sidestep the tax issue.
After agreeing to buy SCANA, Dominion boosted its earnings growth target from 6% to 8% annually through 2020 up to 8% and above over that time frame. That higher growth rate would provide further support to the company's plan to increase its dividend at a 10% annual pace during that period. However, with that deal now in question, and additional concerns surrounding the future of Dominion Energy Midstream Partners, it's unclear if Dominion can grow as fast as anticipated in the coming years. While those factors make it a bit riskier at the moment, the reward of collecting an even higher yield due to the sell-off (the payout could grow at a fast pace if the company can work out these issues) might be worth it for some investors.
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