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Dominion Energy Is a Great Dividend Opportunity

This wide-moat utility has two infrastructure projects that should provide plenty of cash to support dividend growth.

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Charles Fishman: We know many investors buy utilities for income, and for those at or near retirement, the security and growth of the dividend are very important. At Morningstar, we put a lot of effort into looking at future earnings and cash flows, trying to determine the safety of the dividend and where the cash to pay and grow the dividend will come from. We think Dominion Energy is a great opportunity for investors, as the shares have a common dividend with a yield currently around 4%, and an undervalued stock price.

This wide-moat company, in fact Morningstar's only wide-moat utility, is finishing up one huge infrastructure project and getting ready to begin another. The project nearing completion is the $3.5 billion Cove Point LNG export facility in Maryland. LNG stands for liquefied natural gas, and two large international energy marketing companies, one from Japan and one from India, will buy natural gas from producers, ship it to Cove Point where it will be cooled to minus 259 degrees Fahrenheit and loaded on a ship. The marketers have contracted with Dominion to do this for 20 years, regardless of whether they continue to use the facility. In other words, the cash flow to Dominion is solid and not dependent on energy prices.

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Charles Fishman does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.