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Dominion Energy Offers an Attractive Yield

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Rising Treasury yield could concern utilities

On October 3, the US ten-year Treasury constant maturity rate was 3.16%, its highest level since July 1, 2011. On August 23, the ten-year Treasury constant maturity rate was 2.8%, its lowest level since May 29.

Between August 23 and October 3, the yield rose ~36 basis points. In the period, Dominion Energy (D) fell 1.1%. Rising Treasury yields could be a concern for rate-sensitive stocks such as utilities.

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Dominion’s dividend yield

As of October 3, Dominion Energy is trading at a dividend yield of ~4.8%. At that level, it’s 1.3% higher than the Utilities Select Sector SPDR ETF’s (XLU) yield. Until 2020, Dominion Energy’s earnings could grow at a 6%–8% compound annual growth rate. Its dividend growth rate should track its earnings growth rate.

Peer comparison

Dominion has the highest dividend yield among its peers. American Electric Power Company (AEP), Duke Energy (DUK), Public Service Enterprise Group (PEG), and NextEra Energy (NEE) are trading at dividend yields of 3.5%, 4.7%, 3.5%, and 2.7%, respectively.

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