Earnings stability is extremely important for utility companies and their investors because it facilitates dividend payments. Dominion Energy’s (D) earnings were notably stable in the last few years and experienced earnings growth above the industry average.
Dominion Energy management has given a 2017 earnings guidance of $3.40–$3.90 per share. It’s targeting earnings growth of 10% in 2018 compared to 2017. Utilities, on average, are looking for an earnings growth of 4%–6% per year for the next few years.
Superior earnings growth
At $52 billion in market capitalization, Dominion Energy is the third-largest utility holding company among the S&P 500 utilities (XLU). Its large regulated operations facilitate stable, predictable earnings. Its above-average earnings growth and stability could continue to contribute to its premium dividend growth going forward.
Although Dominion Energy’s five-year net profit margin averaged 15%, which was higher than the industry average (VPU), its net income growth was fairly low in this period. In the last five years, its net income rose 2% compounded annually. Its mainstay, the electricity business, witnessed tepid growth due to dull electricity demand growth in the last few years.
Dominion Energy’s gas distribution operations after the Questar acquisition lowered its dependence on the electricity segment. Its soon-to-be-completed Cove Point Liquefaction facility is expected to improve its earnings growth in the coming years.