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Dominion Resources, Inc. Earnings Power Ahead Thanks to the Questar Deal

By Matthew DiLallo - Feb 1, 2017 at 5:28PM

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Utility also unveils its earnings expectations for 2017 and beyond.

A natural gas power plant

Image source: Getty Images.

Dominion Resources' (D 0.20%) operating earnings soared during the fourth quarter due primarily to the recent closing of its acquisition of Questar. Results, however, were about as expected, coming in the middle of its guidance ranges for the quarter and the full year. The company also issued rather disappointing earnings guidance for 2017, implying lower earnings this year before ramping up through the end of the decade.

Dominion results: The raw numbers

Metric

Q4 2016

Q4 2015

Year-Over-Year Change

Operating earnings

$618 million

$416 million

48.6%

Operating earnings per share

$0.99

$0.70

41.4%

Data source: Dominion Resources.

What happened with Dominion this quarter? 

Strategic initiatives powered earnings growth this quarter:

  • Dominion's operating earnings were slightly higher than the midpoint of its guidance range of $0.90 to $1.05 per share. Driving the year-over-year increase was a return to normal weather as well as the contribution from recently completed growth projects and the addition of Questar.
  • Full-year operating earnings came in at $3.80 per share, smack dab in the middle of its guidance range of $3.60 to $4.00 per share. Year over year, operating earnings were up 10.5%.
  • The company's next slate of growth projects continues to move forward as expected with construction on both the Greenville County combined cycle power station and Cove Point Liquefaction project on time and on budget. Furthermore, Dominion and its partners took another step toward commencing construction on the Atlantic Coast Pipeline after receiving a draft Environmental Impact Statement from FERC. The partners hope to start construction later this year and bring it online by the end of 2019.

What management had to say 

As CEO Thomas Farrell said about the company's results:

We are very pleased with our strong safety, operational and financial performance in 2016. Operating earnings per share were in the middle of our guidance range and 10% above last year's. In December, our Board established a 2017 dividend rate that would result in an increase of 8% from 2016. This is the third straight year of 8% annual dividend growth, which is among the best in the industry. We anticipate being able to increase the dividend at greater than 8% beginning in 2018.

As Farrell points out, Dominion did exactly what it said it would do last year by hitting the midpoint of its guidance and delivering 10% earnings growth. That growth enabled it to hand shareholders an 8% raise for the third straight year. Meanwhile, with several growth projects well underway, the company sees dividend growth accelerating in 2018, fueled by the completion of Cove Point.

Looking forward 

That said, while Dominion expects to ramp up its dividend increases in 2018, it sees earnings taking a step backward this year. That is after issuing operating earnings guidance of $3.40 to $3.90 per share, which at the midpoint implies a 3.9% decrease from 2016. However, the company sees growth resuming in 2018, with expectations that operating earnings will increase at least 10% that year and will grow at a 6% to 8% compound annual rate through 2020.

Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends Dominion Resources. The Motley Fool has a disclosure policy.

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