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By Charles Fishman, CFA | 02-02-2016 04:00 PM

This Utility Should Benefit From the Natural Gas Boom

The shift from coal to natural gas is good news for wide-moat Dominion, but investors should wait for a better price.

Charles Fishman: Following the Iowa caucus, we probably have even less clarity regarding who will be our next president.

However, we believe investors can assume that, regardless of our next leader, the public will continue to demand lower emissions from power plants and, specifically, less carbon dioxide emissions from coal-fired plants.

There will be less coal used in the electric utilities industry; the only question is how fast the decline occurs. Replacing coal will be wind farms, solar, and natural gas-fired power plants. As coal plants retire and as we build more gas plants, we will need more pipelines to bring natural gas to these plants.

One company we like that is building and acquiring gas pipelines is Dominion Resources (D). Already a major owner and operator of interstate pipelines in the mid-Atlantic, the company announced in late 2014 that it would be the operator and 45% owner of the Atlantic Coast Pipeline. The 550-mile, $5 billion pipeline will bring natural gas from the shale-gas regions of Pennsylvania to a huge proposed gas-fired power plant in southern Virginia and then proceed into North Carolina to serve other new plants.

Earlier this week, Dominion announced it would acquire Questar Corporation (STR), a natural gas utility based in Salt Lake City. Management was very clear that the main reason for the acquisition was to expand the Questar Pipeline, a 2,700-mile interstate gas pipeline. Expansions will serve new gas-fired power plants in Utah and Wyoming--states that currently generate 80% of their electricity from coal.

We believe Dominion is a growth and income story that investors should keep on their watchlist.

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