Dominion Raises Dividend Payout - Analyst Blog

Dominion Resources Inc. (D) has revised its dividend policy for 2011, willing to return about 60%-65% of its operating earnings to shareholders in the form of dividends. This replaces the company's existing 2010 dividend policy targeting payout ratio of 55%.

Dominion Resources will now pay an annual dividend of $1.97 per share in 2011, compared to $1.83 to be paid this year. This lifts the company's dividend 7.7% over the targeted 2010 dividend rate.

Following the board declaration in January 2011, Dominion expects to pay its first quarterly dividend for 2011 at a rate of 49.25 cents per share. This dividend will be payable in March 2011.

Dominion believes the revised payout ratio of 60%-65% better reflects its transition into a company whose earnings are more heavily tied to regulated operations. With the rise in the payout ratio in 2011, the company expects its payout ratio to be in line with its utility peers.

The current dividend payout ratio of Dominion's closest peers American Electric Power Co. Inc. (AEP) and Consolidated Edison Inc. (ED) is 60% and 69%, respectively.

Dominion has consistently increased its dividend payout ratios, in the past, enhancing shareholder value. Historically, Dominion has raised dividend payout ratio by 11%, 11% and 4.6% in 2008, 2009, and 2010, respectively. This illustrates the company's commitment to provide consistent returns to shareholders.

We note that Dominion's strong balance sheet and cash flow position support its policy of consistently raising dividend payouts. The company ended the September quarter with very strong liquidity of $4.4 billion, including $946 million in cash on hand and short-term investments and $3.4 billion of available credit lines. The company's operating cash flow was $1.9 billion at the end of the nine month period.

Dominion's adjusted earnings in third-quarter 2010 were $1.03 versus 99 cents in the comparable year-ago period.

Dominion expects its fourth-quarter 2010 adjusted earnings in the range of 59 - 69 cents per share. It expects adjusted earnings to be $3.30–$3.40 per share in fiscal 2010 and $3.00–$3.30 per share in fiscal 2011. The Zacks Consensus Estimates for fourth quarter 2010, fiscal year 2010 and fiscal year 2011 are 66 cents per share, $3.35 per share and $3.19 per share, respectively, in line with the company's guidance ranges.

Based in Richmond, Virginia, Dominion Resources, together with its subsidiaries, engages in producing and transporting energy in the United States.

Dominion Resources currently retains a Zacks #3 Rank (short-term Hold rating). We maintain our long-term ‘Neutral' rating on the stock.

 
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