This Income Stalwart Remains Worthy

10/25/2012 10:15 am EST


Roger Conrad

Chief Analyst/Managing Partner, Capitalist Times

This is truly a stock for all seasons, and has remained so for decades...and it will continue to carry that tradition forward, writes Roger Conrad of Personal Finance.

Virginia-based power company Dominion Resources (D) hiked its quarterly dividend this year to 52.75 cents, a boost of 7.7% from the previ­ous year. Now paying a healthy dividend of 3.8%, the company’s stock price has been in a steady upward trajectory for years, gaining roughly 1,000% since January 1990.

That said, this year’s unseasonably warmer weather has dampened the com­pany’s performance. Second-quarter 2012 revenue came in at $3 billion, a drop of about 9% from the same period a year ago.

Second-quarter earnings reached $258 million, a decline of 23% from the same year-ago quarter. The earnings decline largely stemmed from $45 mil­lion in restoration fees in the wake of a powerful June storm that denied power to more than 1 million of the utility’s customers.

The “derecho” that swept through the company’s mid-Atlantic service area was one of the most destructive and deadly severe thunderstorm complexes in North American history. But this natural disaster came with a silver lining for Dominion, because it presented yet another chance for the company to burnish its reputation for high-quality customer service, which holds a utility in good stead with regulators.

Confronted with the daunting challenge of fixing downed power lines in its huge operating area, without assistance from similarly hit competitors, Dominion restored power to 98% of affected customers within a week. By contrast, other nearby utilities fell woefully short in the task.

The derecho damage is now behind the company, and it’s back on track for outsized growth. Over the past five years, Dominion has grown earnings by 22.3% annually, despite tough economic conditions.

Dominion continues to enhance its efficiency. So far this year, it has installed more than 100,000 smart meters, a technology that’s increasingly pervasive in the utility sector.

The company was among the first to embrace these machine-to-machine (M2M) devices. Research firm IDC predicts that shipments of smart meters to the utility industry will grow nearly 112% by the end of 2012 compared to 2011.

Dominion also is installing a “circuit reconditioning” program that targets lines with historically high rates of outages. These programs reflect the company’s commitment to making capital investments for long-term growth and efficiency.

In September, Dominion finished its Appalachian Gateway pipeline for trans­mitting natural gas between West Virginia and Pennsylvania’s Marcellus Shale. Also in September, the company announced plans to sell three power plants, two in Illinois and one in Massachusetts, and use the proceeds to reduce debt and focus on the regulated side of its business.

The transaction is scheduled for completion by the first half of 2013, and represents Dominion’s exit from the low-margin wholesale power market. Dominion Resources is a buy.

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