Dominion Energy’s D shares have surged impressively, boasting a 31.9% increase year to date, outpacing the Zacks Utility – Electric Power industry’s growth of 24.1%. This performance is no small feat, especially when you consider that Dominion has outshone both the broader Zacks Utilities sector and the S&P 500 Composite. Investors are clearly taking notice, and the bullish trend is underscored by the stock trading above its 50-day and 200-day simple moving averages.
What’s fueling this momentum? For starters, Dominion Energy is on a robust investment spree, planning to plow $43 billion into its infrastructure by 2029. This hefty investment isn’t just about keeping the lights on; it’s a proactive measure aimed at preventing outages and enhancing overall reliability. The company is also stepping up to the plate on environmental commitments, setting its sights on achieving net-zero carbon and methane emissions from its electric generation and natural gas infrastructure by 2050. This kind of forward-thinking is exactly what the energy sector needs as it grapples with increasing pressure to transition to cleaner sources of power.
The strategic shift in Dominion’s portfolio is evident. The company is doubling down on regulated assets, having divested some merchant generation facilities and its electric retail energy marketing business. This realignment strengthens its core operations and sets the stage for sustainable growth. A recent partnership with Amazon to explore Small Modular Reactor (SMR) nuclear development in Virginia signals Dominion’s commitment to innovative, clean energy solutions. This collaboration could yield substantial benefits, providing reliable clean energy to meet long-term customer demands.
Dominion’s ambitious plans don’t stop there. The company aims to ramp up its renewable energy capacity by over 15% annually through 2036, with investments in battery storage, solar, hydro, and both offshore and onshore wind projects. This aggressive expansion is critical, especially as demand for electricity surges, driven in part by the burgeoning data center market. So far, Dominion has connected 14 new data centers in 2023 and expects to add another 16 in 2024. These connections are not just numbers; they represent a growing customer base that necessitates a robust and resilient electric infrastructure.
However, it’s not all sunshine and rainbows. Despite the upward trajectory, Dominion’s trailing 12-month return on equity (ROE) of 8.35% lags behind the industry average of 10.98%. This raises eyebrows about how effectively the company is utilizing its shareholders’ funds. Moreover, the stock is currently trading at a premium compared to its industry on a forward 12-month P/E basis. While the dividends remain attractive—currently at an annual yield of 4.52%, surpassing the industry’s 3.18%—the high valuation suggests a cautious approach for new investors.
As Dominion Energy continues to navigate the complexities of the energy landscape, its systematic investments in clean energy and infrastructure upgrades position it well for the future. Yet, the company must also address its relative inefficiencies and high valuation to maintain investor confidence. For those already holding shares, the dividends may provide a silver lining, but prospective investors might want to bide their time for a more favorable entry point. The energy sector is evolving, and Dominion is at the forefront of this transformation, but the journey ahead demands vigilance and strategic foresight.
