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Here's What Differentiates Dominion Energy from Its Peers

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Part 6
Here's What Differentiates Dominion Energy from Its Peers PART 6 OF 13

How Dominion Energy’s Debt Profile Looks Next to Its Peers

Debt profile

Dominion Energy’s (D) total debt increased after its Questar acquisition last year. As interest rates in the United States gradually rise, debt servicing could become more expensive, which could dent utilities’ (XLU) profitability going forward.

At the end of 3Q17, Dominion Energy had a total debt of $37 billion. Its debt-to-market capitalization ratio was 0.7x, and its debt-to-equity ratio was 2.3x.

How Dominion Energy’s Debt Profile Looks Next to Its Peers

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NextEra Energy (NEE) and Southern Company (SO) have debt-to-equity ratios of 1.3x and 2.0x, respectively. Duke Energy’s debt-to-equity ratio is 1.3x.

A debt-to-equity ratio specifies how much debt is used for financing a company’s assets compared to equity. A higher ratio suggests higher debt servicing costs. Among the top utility stocks, Dominion’s debt-to-equity ratio seems to be on the higher side compared to its peers, which could concern investors.

Leverage

At the end of 3Q17, Dominion Energy’s net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio was 6.0x. The industry average is 4.0x–4.5x. Compared to its peers, NextEra Energy’s net debt-to-EBITDA ratio is 4.2x, while Duke Energy’s is 5.6x. Southern Company’s ratio is 5.5x.

The net debt-to-EBITDA ratio shows how many years it would take a company to repay its debt if both its debt and EBITDA stayed constant.

Among the top utilities, NextEra Energy’s debt profile appears to be sound and controlled.

In the next part of this series, we’ll look at Dominion Energy’s free cash flow trends.

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