Is Dominion Resources Still a Great Dividend Play?

With shares of Dominion Resources (NYSE:D) trading at around $51.56 is D an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Dominion Resources is far from the most exciting stock to own, but you might be surprised to know that the stock is up more than 55% over the past three years. When you combine that with a 4.20% yield, that’s quite a play. Looking ahead, there is good news and bad news.

The good news is that Dominion Resources is seeing lower interest expenses and a lower effective tax rate. There is also good potential for increased revenue from growth projects.

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The bad news is that Dominion Resources is expecting lower margins and increased expenses going forward. This is after seeing unplanned outages for Q3. The third quarter saw poor YoY earnings and revenue growth. These aren’t great signs, which is perhaps why 16 out of 21 analysts have recommended a Hold. The other five recommended a Buy. No one recommended a Sell. This is Dominion Resources we’re talking about. The world could end and no one would recommend a Sell. That’s the kind reputation Dominion Resources has established. However, can that reputation be justified considering current circumstances?

E = Equity to Debt Ratio Is Weak

The debt-to-equity ratio Dominion Resources is 1.71, which is high. It’s also higher than competitors in the industry, Southern Company (NYSE:SO) and Consolidation Edison (NYSE:ED). In regards to cash vs. long-term debt, the situation is far from comforting. That said, long-term debt recently decreased by $200 million, which is a start.

Debt-To-Equity

Cash

Long-Term Debt

D

1.71

$81 Million

$20.71 Billion

SO

1.10

$1.26 Billion

$21.39 Billion

ED

.94

$69 Million

$10.77 Billion

 

T = Technicals on the Stock Chart Are Good

Dominion Resources has exceeded expectations over the past three years when it comes to stock performance. As mentioned above, the stock is up over 50% for that timeframe. While not nearly as impressive, the past year has seen a solid gain of 6.70%, which is good for a high-dividend play. Perhaps you shouldn’t get overly excited about Dominion Resources specifically, though. The industry tends to trade together, which you can see a hint of below.

1 Month

Year-To-Date

1 Year

3 Year

D

2.64%

1.51%

6.70%

55.52%

SO

-2.58%

-2.06%

2.38%

52.31%

ED

-2.24%

-5.82%

-.81%

46.07%

 

At $51.73, Dominion Resources is currently trading at its 50-day SMA of $51.73. It’s trading slightly lower than its 100-day SMA of $52.64. And it’s trading slightly lower than its 200-day SMA of $52.26.

 E = Earnings and Revenue Are Consistent

Revenue has been consistent over the past five years, but we haven’t seen growth. Some people might say this should be expected from a utilities company, but it’s still a business, and investors want growth. The good news is that earnings are always solid.

2007

2008

2009

2010

2011

Revenue ($)in billions

14.82

15.90

14.80

15.20

14.38

Diluted EPS ($)

3.88

3.16

2.17

4.76

2.45

 

Quarterly revenue has been steady for the most part while earnings have been sporadic.  

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in billions

3.75

3.29

3.50

3.05

3.41

Diluted EPS ($)

.69

.36

.86

.45

.36

 

T = Trends Do Not Fully Support the Industry

The good news is that there will always be a need for utility companies. Dominion Resources also expects growth in electric service territory. The bad news is that there have been declines in revenue throughout the industry as of late. As always, a lot is also dependent on weather and water levels.

Conclusion

The biggest weakness for Dominion Resources is debt, but the company is moving in the right direction in that regard. There are many other positives and negatives at play here, and those positives and negatives will likely cancel each other out, making Dominion Resources what it has always been – a good dividend play.

Also, while Dominion Resources didn’t perform well during the financial crisis of 2008, it managed to stay afloat better than most stocks. Therefore, it’s a potential place to hide if Fiscal Cliff talks don’t work out.

Considering all factors, Dominion Resources is an OUTPERFORM.

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