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Dominion Energy Inc. Generates High-End Results

By Matthew DiLallo – Apr 27, 2018 at 11:45AM

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Despite some growing uncertainty, the utility reaffirmed its forecast for dividend growth.

Dominion Energy (D -2.74%) started 2018 well, delivering results that came in at the high end of its forecast thanks to much colder weather than last winter. Because of that, the utility believes its full-year results will come in above the midpoint of its guidance range. The company also affirmed its dividend growth forecast even though two factors helping to power it -- the SCANA (SCG) merger and its ability to grow its master limited partnership Dominion Energy Midstream Partners (NYSE: DM) -- have become increasingly uncertain.

Dominion results: The raw numbers

Metric

Q1 2018

Q1 2017

Year-Over-Year Change

Operating earnings

$741 million

$611 million

21.3%

Operating EPS

$1.14

$0.97

17.5%

Data source: Dominion Energy.

A natural gas pipeline in the snow.

Image source: Getty Images.

What happened with Dominion this quarter? 

The weather finally cooperated:

  • Warmer-than-normal weather has plagued utilities in recent years by sapping demand for natural gas as well as electricity to heat homes. In the year-ago quarter, the weather cost Dominion $0.08 per share of earnings. This winter, however, the weather has been much colder, which helped drive Dominion's operating earnings toward the high end of the company's guidance range of $0.95 to $1.15 per share. Besides the weather, Dominion also benefited from higher margins and lower taxes.
  • Dominion completed work on its Cove Point liquefaction facility in Maryland, which will liquefy and export natural gas to global markets. The $4 billion project should supply the company with steady cash flow supported by long-term contracts.

What management had to say 

Besides those strong first-quarter operating results, CEO Thomas Farrell noted that the company made excellent progress on its expansion projects. Not only did it finish construction of Cove Point this month, but it's also on pace to complete the Greensville County power plant by the end of this year. Meanwhile, the company and its partners are making progress on the Atlantic Coast Pipeline and Supply Header Project, which they expect to finish at the end of next year.

Looking forward 

Farrell said that the company's strong start to the year puts it on pace to finish above the midpoint of its guidance range of $3.80 to $4.25 per share, which would be a more than 12% increase from 2017.

Farrell also said: "We have reviewed our dividend growth-rate assumptions with our board, and reconfirm our policy to increase the dividend 10% annually in 2018 and 2019. The growth rate in 2020 is expected to be between 6% and 10%, depending on the viability of master limited partnership [MLP] capital markets at that time."

This affirmation is noteworthy in light of a policy change in the MLP market, which will impact the ability of these entities to collect an allowance for income taxes along with the rates charged on certain pipelines. The revision of this long-standing policy could affect the cash flows generated by Dominion Energy Midstream as well as its ability to access capital at favorable rates. Because of that, it could hinder Dominion Energy's ability to sell assets to its MLP, which is a key driver of its dividend growth plan.

In addition to the uncertainty relating to the MLP market, Dominion's proposed merger with troubled South Carolina-based utility SCANA is facing some obstacles. The state's government recently voted to slash the rates charged by the utility, which it had raised to help pay for its now-failed nuclear power project. Dominion has threatened to walk away from the deal if the planned rate cut becomes law. Losing out on SCANA would hurt, since Dominion anticipated that the deal would boost its earnings growth forecast from 6% to 8% annually through 2020, up to more than 8% per year, which would further support its dividend growth plan.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool recommends Dominion Energy, Inc. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Dominion Resources, Inc. Stock Quote
Dominion Resources, Inc.
D
$69.11 (-2.74%) $-1.95
SCANA Corporation Stock Quote
SCANA Corporation
SCG

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