Ol' Dominion

By Malcolm Berko

October 10, 2018 5 min read

Dear Mr. Berko: Back in the middle of 2014, I wrote and asked you to recommend a good utility stock for my 77-year-old mother. Mom had a $13,000 certificate of deposit that was coming due, and the interest rate on her renewal was terrible. Seeing as the women in my family have long lives, we wanted a utility that would regularly raise the dividend, as well as increase in value. You recommended Dominion Energy, and we believed you. So that summer, we bought 150 shares at $75.25, and the stock paid Mom 3.1 percent. But now Dominion is about $72, and we have a loss of about $500. We can't afford to lose money. And we never expected this to go down in price, because you said in your email to us, "This issue should have strong dividend growth and modest principal appreciation over the long term." We have two other stocks, and both are up. So why hasn't Dominion gone up when the stock market is way up? Did you give us bad advice? What should we do now? — SP, Durham, N.C.

Dear SP: It looks as if I gave you bad advice, but looks are often deceiving. I apologize, but I know my apology won't encourage Dominion Energy (D-$72.70) to traipse back to your $75.25 cost basis. However, when your mom bought Dominion four years ago, the dividend was $2.35. And I hope you noticed that D's dividend has increased in each of the past four years, to $3.34 a share. When your mom bought D, she was getting $352 in dividend income each year, or $88 each quarter. Now that D's dividend has increased, Mom is getting $501 annually, or $125.25 every quarter. That's nearly a 50 percent increase in income. And by the end of this year, your mom will have received $2,300 in dividends. Please don't worry about the small loss, as I will give you a "guaranteed maybe" that within a dozen months, D will trade at your cost basis or higher.

Dominion's shares rose to over $85 late last year. Investors were expecting a positive ruling from the Federal Energy Regulatory Commission concerning taxes on Dominion Energy Midstream Partners, a highly efficient master limited partnership. But the ruling was negative, and D's price collapsed to the low $60s. Working with government bureaucrats such as the dunderheads at FERC is like trying to row your boat in a lake of mud. But recently, FERC reversed its ruling, and Dominion shares have recovered nicely since September. The new ruling allowed Dominion's management to profitably acquire Dominion Energy Midstream Partners. Management expects the transaction to close by year's end. As the Bard said, all's well that ends well.

But it doesn't end here, because there may be more good news to come. Dominion is in talks to buy SCANA Corp. (SCG-$39). SCANA has faced government regulatory problems after canceling its nuclear construction project, which could bankrupt the company. SCANA, a $4 billion-revenue utility, has some 1.6 million electric and gas customers in the Carolinas and 450,000 customers in Georgia. An unfavorable regulatory ruling from the stupids at FERC would encourage Dominion to withdraw its offer.

"What should we do now?" you asked. Well, you and your mom could either buy another 100 shares of Dominion or just stay the course and let those revenues, profits and dividends grow each year. This year, Dominion should post $13 billion in revenues, and in 2019, D's revenues could rise to $13.5 billion. And Dominion should be able to maintain its high payout, thanks to the income it receives from Dominion Energy Midstream Partners. Management's earnings guidance for 2019 is $4.37 a share, compared with $3.75 in 2018, and a $3.72 dividend, versus $3.34 this year, looks like a shoo-in. D's profitable future looks like a shoo-in, too. Going out four to five years, Wall Street believes that D could post $15 billion in revenues on its books. And by 2023 — aided by a lower tax rate, at 19 percent — earnings of $5.25 a share and a $4.70 dividend are a definite possibility. So you must have the patience to hold Dominion for another few years, as some analysts believe that it could trade at over $100 a share.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected] To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

Photo credit: at Pixabay

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