Dominion Hikes 2013 Dividend Rate - Analyst Blog

By Zacks | December 19, 2012 AAA

Virginia utility Dominion Resources Inc.'s D) board of directors announced a fresh dividend outlook which includes the achievement of a targeted dividend payout ratio of 65% to 70%. The company also hiked its dividend rate to $2.25 per share for 2013 reflecting a 6.6% increase from $2.11 per share in 2012. The hiked quarterly dividend payment of 56.25 cents per share will be paid in March 2013 subject to the board statement in January 2013. The current dividend policy is a replacement of the one set in December 2010 which involved the realization of a 60% to 65% payout ratio.

We believe the current dividend policy would win the confidence of the company's shareholders and will add value to their wealth accretion.

Furthermore, this marks the 10th successive annual dividend hike. Since 2006, the dividend rate increased almost 63%. Dominion's strategy to focus on growth of its regulated business and its diminishing reliance on commodity based earnings were the main drivers behind the proposed dividend rise.

The company's current dividend yield rate is 4.04%, higher than its peer NiSource Inc.'s (NI) dividend yeild of 3.89%.

The company in the third quarter 2012 saw operating cash flow increase to $3.5 billion from $2.4 billion in the year-ago period. We believe the solid operating cash flow profile and available liquidity of approximately $2.1 billion will amply meet the company's expected cash requirements and finance its future growth prospects for the next couple of years.

Dominion's earnings per share stood at 92 cents in the third quarter, down 3.2% from the year-ago figure and 5.2% from the Zacks Consensus Estimate. The company anticipates fourth quarter 2012 operating earnings in the range of 65 cents to 75 cents per share.

Another utility provider OGE Energy Corporation (OGE) recently raised its quarterly dividend by 6.37% to 41.75 cents per share from the previous level of 39.25 cents per share. The annualized dividend will be $1.67 per share from the earlier payout of $1.57 per share.

The Zacks Consensus Estimates for the fourth quarter and full year 2012 are currently pegged at 69 cents and $3.06 per share, respectively.

Dominion Resources along with its subsidiaries engages in producing and transporting energy in the United States. It operates in three segments: Dominion Virginia Power, Dominion Generation and Dominion Energy. The company presently has a short-term Zacks #3 Rank (Hold rating).

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