When it comes to dividend stocks, it's understandable to want pure plays. But for utilities, a diversified company can be as important to profits as your own portfolio's diversity. This seemingly "natural gas pure play" just took another diversified dip. Here's what it means for you.
The new renewable
Dominion (D -1.02%) announced this week that it has snagged its third solar project this year -- a 5 MW farm in north-central Connecticut. The facility was jointly built by Japanese industrial company Kyocera (NYSE: KYO) and CleanPath, a privately held California clean-energy company.
Source: Dominion.com, Azalea Solar Farm.
Dominion Generation CEO David Christian noted in the press release that this latest project joins a "growing list of renewable projects that Dominion has announced or brought online this year as we maintain our focus on providing a mix of affordable, clean, and reliable power."
Solar farms like this one aren't just pet projects. Power purchase agreements with regulated utilities guarantee a consistent buyer, locking in sales for years to come. While some diversified utilities choose to keep their generation in the corporate family, Dominion will be shipping its new solar power to Northeast Utilities' (ES -1.75%) Connecticut Power & Light for the next 20 years.
This latest addition brings Dominion's solar acquisitions to 41.3 MW for 2013 alone, but the company's renewables portfolio stretches beyond just solar. The utility currently has 1,000 MW of wind under development, in construction, or in operation, as well as hydroelectric and biomass-powered plants. With 1,500 MW of renewable energy on the table or in the plans, the company's 23,500 MW generation portfolio is hardly a pure play.
Why diversify?
If you've heard of Dominion, you probably know it as a major natural gas player. The utility has more than 11,000 miles of gas transmission lines, and its Cove Point plant became the fourth company to snag LNG export approval to non-Free Trade Agreement countries. This provides some major profit potential for Dominion -- but investors should breathe easier knowing the utility's got more on offer than a volatile fuel whose price has fluctuated down 10% and up 25% in 2013 alone.
In the company's latest quarterly report, Dominion pulled in $3.5 billion in sales from its regulated electricity sales alone, more than half of its $6.5 billion of revenue for the same period. And nonregulated sales (which its latest solar farm will add its name to) clocked in at $1.2 billion. Less stable than regulated earnings, Dominion's electricity generation unit relies on diversification to keep margins maximized no matter where fuel prices head.
While big moves like new natural gas exports have helped to push Dominion shares up 90% in the past five years, it's regulated earnings that keep cash flowing for that delectable dividend growth and 3.5% dividend yield.
Foolish bottom line
The only thing better than a diversified portfolio is a diversified portfolio of diversified portfolios. Natural gas may be a big part of your investment thesis -- and it can be -- but small acquisitions like Dominion's new solar farm can keep this dividend stock poised for profit no matter what.
