Duke & Dominion: Stick with These Utilities

07/20/2020 5:00 am EST


Richard Moroney

Editor, Dow Theory Forecasts

Citing regulatory delays, Duke Energy (DUK) and Dominion Energy (D) scrapped plans to build an $8 billion pipeline to transport natural gas 600 miles along the Atlantic Coast, observes Rich Moroney, editor of Dow Theory Forecasts.

Duke and Dominion first proposed the pipeline project in 2014. Seeking to narrow its focus to electric and natural-gas utilities, Dominion also agreed to sell its natural-gas transmission and storage business to Berkshire Hathaway (BRK.B) for $9.7 billion including debt.

Following the announcement, Duke raised its quarterly dividend 2% to $0.965 per share, payable Sept. 16. Dominion plans to slash its quarterly dividend 33% to $0.63 per share in the December quarter, reflecting its smaller asset base from the sale to Berkshire.

Starting in 2022, Dominion plans to raise its dividend 6% annually, up from its previous long-term target of 2.5% growth. Management targets a payout ratio of 65%.

Shares of both Duke and Dominion fell on the news. The Atlantic Coast Pipeline would have supplied a growth kicker, while diversifying the companies beyond traditional regulated utilities. But the project had been in trouble for years, plagued by rising cost projections and legal challenges.

Although more near-term weakness is possible, operations for both utilities now appear more stable than they likely would have been after pursuing a massive project in a severe recession. Duke and Dominion remain members of our Top 15 Utilities Portfolio.

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