Dominion (D) To Lower Debt Level, Reaffirms 2018 Guidance
Zacks Investment Research | Mar 27, 2018 09:27PM ET
Dominion Energy, Inc. (NYSE:D) announced that it has already taken steps to lower its present debt levels. The company decided to sell its non-core assets, issue equity and go ahead with its planned capital reduction to achieve targeted leverage ratio.
In February 2018, Dominion Energy borrowed $950 million under a 364-Day Term Loan Agreement that bears interest at a variable rate. In addition, the agreement contains a maximum allowed total debt to total capital ratio of 67.5%. So, the initiatives undertaken by the company will allow it to trim debt levels and meet its target.
At present, the total debt-to-capital ratio of the company stands at 74.18%, much higher than its industry average of 55.03%. The decision to lower debt levels amid rising interest rates is a well-timed one by management.
At 2017 end, Dominion Energy’s total interest expenses and other related charges were $1,205 million, up 19.3% from 2016 levels.
Reaffirms Guidance
Taking into consideration the initiatives to reduce its current debt levels, Dominion Energy reaffirmed its first quarter and full-year 2018 earnings per share guidance of 95 cents-$1.15 and $3.80-$4.25 per share, respectively. Dominion expects earnings to improve annually by 6-8% in the 2017-2020 time frame.
The company also reaffirmed its intention to increase its annual dividend rate by 10% through 2020, subject to the approval of its board of directors.
What’s in Store?
Dominion Energy expects the annual growth capital to be in the range of $3.7-$4.2 billion. Dominion Energy’s portfolio realignment strategy focusing on regulated assets and more than 90% of its earnings coming from regulated assets will drive Dominion’s earnings growth.
In addition to contribution from organic assets, its decision to merge with SCANA Corporation (NYSE:SCG) , contribution from acquired assets and new growth projects are likely to drive performance of the company.
Rate Hikes to Hurt Utilities
The Fed rate has now been raised for the sixth time since the first hike was announced in December 2015 when the U.S. economy had pulled itself out of the Great Recession. The policy makers sounded quite positive in their outlook for the U.S. economy. Quite naturally, the Fed expects to increase interest rates two more times in 2018.
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The capital intensive Utility sector might cringe at the thought of it for it takes recourse to external sources of financing to meet its capital requirements. In a way, rising interest rates increase this sector’s cost of capital, leaving an adverse impact on margins. The rate hikes can also comprise Utilities’ ability to consistently pay out dividend.
Price Movement
In the last three months, decline in Dominion Energy’s shares was wider than the Zacks Investment Research
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