I have issues with the corporate review that Dominion Energy (D -1.02%) announced when it reported third-quarter 2022 earnings last year. One problem has gotten increasingly upsetting, as it speaks to a management team that in my view isn't thinking enough about its investors, of which I'm one (for now). I've been stuck waiting in an information void even though the company is already making big corporate changes. Here's what you need to know today.
Dominion reviews its business, again
Dominion Energy has been reshaping its business for a very long time. At one point in the company's history, it actually owned energy production assets. That was a while ago now, with the energy giant effectively looking to slim down to more contract-based, fee-focused, and regulated utility assets. A few years ago, it looked to me like the company was in a good position, with a combination of midstream assets, like pipelines, and regulated utilities, like electric and natural gas utilities.
Image source: Getty Images.
But then things got more difficult in the midstream space. One of Dominion's pipeline construction projects was facing massive legal, environmental, and regulatory pushback, with a real risk that it might not get completed. Management looked at its midstream operations and decided it was best to get out of the sector. It didn't discuss this potential in any meaningful way with shareholders; rather, it just sold the majority of its midstream business to Berkshire Hathaway (BRK.B -0.69%) in late 2020.
Pipelines were a big part of Dominion's business, so that $8 billion deal came with a dividend cut. However, management promised that dividend growth would be the norm from that point for the foreseeable future.
And then, in the third quarter of 2022, Dominion announced that it was undertaking yet another review of its business. The company didn't actually provide any guidance on what it was thinking, other than that the plan included focusing on its best assets while maintaining its balance sheet strength and dividend at current levels.
Waiting for an answer, but watching divestitures
My first reaction to the latest business review news last year was negative. I can't help but wonder when Dominion will finally be done simplifying its operations and what the dividend stock I bought will look like at the end of it. But I think the utility owns good assets, so I figured I would at least wait until I had a better handle on what the company's formal plans were. That effectively means waiting until management explains the outcome of its review. It has yet to do that.
But that doesn't mean that Dominion isn't making big moves. In July, Dominion got together with Berkshire Hathaway again, this time selling its remaining stake in the Cove Point liquefied natural gas export facility for $3.5 billion. Dominion built that facility and it was backed by long-term contracts. The cash flows should have been pretty predictable. Still, I guess it doesn't fit with the company's long-term goals, whatever those may be.
More recently, Dominion inked a deal with Canada's Enbridge (ENB -1.21%) to sell three natural gas utilities for total consideration of $14 billion (including Enbridge's assumption of $9.4 billion in debt). These were reliable cash-generating assets in supportive regulatory markets. Seems like that's maybe not what Dominion wants to own anymore, I think.
From a big-picture perspective, what Dominion seems to be doing is shifting away from natural gas so it can focus on electricity. There's a lot of opportunity for capital spending as the world shifts from carbon fuels (like natural gas) toward renewable power sources like wind and solar. That's not a bad plan -- if that's actually what Dominion is doing.
Which leads to the biggest problem I have: Dominion is making very large moves without explaining to investors why. Shareholders are being left to guess until management deigns to let them in on the secret. I can't help but feel that it would have been better if the company didn't say anything about a business review and just started making changes to the portfolio.
I've waited this long, I guess I'll wait a little longer
Dominion has promised that there will be a shareholder event in the coming months where it will lay everything out for investors. My original plan was to stick around until that meeting, but I didn't expect massive portfolio changes in the interim. And yet, with so much having been done, it seems like I might as well continue to wait. How much more could it sell off at this point? Hopefully Dominion will tell me so I don't have to find out the hard way -- again.
