Thoughts on a Dividend Provider: Dominion Energy

Poor free cash flow generation leads to a pass

Dominion Energy (ticker D), a $50.7 billion Virginia-based energy producer and transporter, is set to report its third-quarter results on October 30, Monday. So far this year, Dominion Energy has underperformed the broader S&P 500 index has generated 6.14% total returns vs. the index’s 16.07%.

Nonetheless, the company has a trailing 3.75% dividend yield with 84% payout ratio in the recent 12 months. Take note, however, that Dominion also raised $850 million from share issuances, therefore, diluting its existing shareholders’ ownership as a result.

In its recent six months operations that ended in June, Dominion recorded 12.2% revenue growth from last year to $6.2 billion and 4.7% higher in profits to $1.02 billion. Meanwhile, total expenses rose by $415 million (or 10.8%) resulting to profit margin that was 119 basis point lower than its year-ago period.

Dominion also carried $260 million in cash and cash equivalents as of June ($117 million lower than a year earlier), and $37 billion in debt ($7.5 billion more) with debt-equity ratio of 2.5x compared with 2.07x a year earlier.

In the past three years, Dominion allocated $17 billion in capital expenditures, raised $11.6 billion in debt (net repayments), raised another $3.6 billion in share issuances, and accumulated a negative or a free cash outflow of -$4.96 billion.

Meanwhile, 18 analysts have an average OVERWEIGHT recommendation on Dominion Energy with a price target of $80.36 vs. $78.96 at the time of writing.

Brought by poor free cash flow generation in recent years, Dominion Energy is a pass.

Disclosure: I do not have shares in Dominion Energy.

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