Dividend Increase | Dominion Energy (D)

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Dominion for the dividend increase!
There's an old Chinese proverb that says "the best time to plant a tree was 20 years ago, the next best time is now".  The reason for this is that it takes time for a tree to grow and prosper and for you to start reaping its benefits.  Dividend growth investing is much the same way.  It takes consistent saving and investing as well as time and patience to let the power of dividend growth take hold.

That's why one of my favorite things is when one of the companies I own decides to pay out more in dividends.  You mean I get a pay raise just for owning a small piece of a company?  Not going and doing R&D for new products or technology.  Not selling any products.  Not managing any employees or inventory.  Not making sales calls.  All I had to do was have the foresight to invest some of my savings in excellent companies.  

On December 13th the Board of Directors at Dominion Energy (D) approved an increase to the quarterly dividend payment.  The dividend was increased from $0.9175 up to $0.94 per share.  That's just a 2.45% increase, but completely expected.  Dominion is a Dividend Contender with 17 consecutive years of dividend increases.  Shares currently yield 4.65% based on the new annualized payout.

The newly increased dividend will be payable with the March 2020 payment.

Since I own 15.713 shares of Dominion in my FI Portfolio, this raise increased my forward 12-month dividends by $1.41.  This is the 2nd dividend increase I've received from Dominion since initiating a position back in 2018 and the organic dividend growth over that time comes to 12.6%.

A full screen version of this chart can be found here.

Of the 17 1-year periods during Dominion's streak, annual dividend growth has ranged from 0.8% to 10.8%.  The average of the the 1-year growth rates comes to 6.5% with a median of 7.1%.

Of the 15 rolling 3-year periods annualized dividend growth has ranged from 2.3% to 9.4% with an average of 7.0% and a median of 7.4%.

Of the 13 rolling 5-year periods annualized dividend growth has ranged from 4.1% to 8.9% with an average of 7.1% and a median of 7.3%.

The 1-, 3-, 5- and 10-year rolling dividend growth rates since 1993 can be found in the following chart.  

A full screen version of this chart can be found here.

For dividend yield theory I consider the fair value range to be the forward dividend yield +/- 10% compared to the 5 year moving average, the under/over value area to be to between 10%-20% deviation from the average and significant over/under value are greater than a 20% deviation from the average.

A full screen version of this chart can be found here.

Dominion's 5-year average forward dividend yield is 4.14% which corresponds to a share price of $90.82 based on the newly raised dividend.  With a current yield of just 4.65% shares are currently trading undervalued.

I consider the fair value range based on dividend yield theory to be the 5-year moving average yield +/- 10%.  That gives a fair value range of $82 - $101.

Analysts expect Dominion to have earnings of $4.20 for FY 2019 and $4.38 for FY 2020.  The current price of $80.88 has shares valued at 19.3x and 18.5x forecasts, respectively.  Using the EV/EBITDA multiple shares look fully valued at 16.6x.  

The return from an investment is comprised of 3 parts: growth in earnings + dividend yield + changes to valuation.  Before accounting for valuation changes, Dominion could potentially produce 9.1% annualized returns.  

Wrap Up

This raise increased my forward dividends by $1.41 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my FI Portfolio's current yield of 2.86% this raise is like I invested an extra $49 in capital.  Except that I didn't!  One of the companies I own just decided to send more cash my way.  

That's how you can eventually reach the crossover point where your dividends received exceed your expenses.  That's DIVIDEND GROWTH INVESTING AT WORK!  The beauty of the dividend growth investing strategy is that you build up your dividends through fresh capital investment as well dividend increases from the companies you own.

I've now received 49 raises in total from 43 of the companies in my FI Portfolio increasing my forward-12 month dividends by $322.34.

My FI Portfolio's forward-12 month dividends are $7,805.80.  Including my FolioFirst portfolio's forward dividends of $101.17 brings my total taxable accounts dividends to $7,906.97.  My Roth IRA's forward 12-month dividends are $642.62.  My Rollover IRA's forward dividends are $2,350.56.  Across all accounts I can expect to receive $10,900.15 in dividends over the next year.

I've also started compiling dividend data on many of the companies that I own or would like to own.  Dominion's can be found here which includes the dividend history (as far back as I can find without spending hours hunting it down), rolling dividend growth rates and dividend yield theory.  To see other companies that I've already gathered the data on you can check out the Dividend Companies page.  Check it out and let me know what you think.

Do you own shares of Dominion Energy?  Was this raise lacking a bit or okay?

Please share your thoughts below.