How Dominion Resources' Strong Dividend Can Power Your Portfolio

Dominion is one of the largest natural gas and electric companies in the U.S.
By Richard Saintvilus ,

Shares of Dominion Resources (D) - Get Report , one of the largest diversified natural gas and electric companies in the U.S., will trade ex-dividend Monday, Nov. 23. To qualify for a dividend check, investors must own shares of the Virginia-based company on or before its ex-dividend date. That's the last day Dominion Resources will finalize its roster of shareholders to whom it will send dividend checks.

With a quarterly payment of 64.75 cents a share, Dominion Resources' dividend yields a robust 3.60% annually -- about 1.6 percentage points higher than the average payer in the S&P 500 (SPX) index. Buying dividends -- a strategy where investors buy stocks for the sole purpose of collecting the announced quarterly dividend and then immediately selling the stock within days after the dividend cash payment has been paid -- can be lucrative. It requires excellent timing, however.

In this case, Dominion Resources is scheduled to pay its dividend on Thursday, Dec. 10 to shareholders of record as of Wednesday, Nov. 25. This amounts to roughly ten trading days between the record date and the pay date -- a relatively short period of time. But Dominion Resources offers tons of reasons to hold its shares beyond the dividend.

With four consecutive earnings beats under its belt, you would be hard-pressed to find a hotter utilities company. But if you've only looked at the performance of its stock -- down some 11% on the year and 5% in six months -- you couldn't tell Dominion was executing so well. And that its stock has underperformed the iShares U.S. Utilities ETF (IDU) - Get Report -- down more than 10% on the year -- doesn't make sense.

Assuming Dominion Resources does earn $3.85 a share for 2016, while that would imply just 4% earnings growth, it also means earnings growth is projected to accelerate in the years ahead. This is because analysts -- on average -- expect the company to deliver annual earnings growth of around 6% in the next five years.

From my vantage point, investors would be better served to ignore the recent decline in profits, which the company attributed to loss income from asset sales, and focus on the long term. It would seem analysts, given its consensus buy rating, aren't worried about Dominion Resources' fundamentals, either. Aside from the strong dividend, there's an implied 18% stock gain, based in its average 12-month price target of $81 -- about $13 higher than where the company's stock trades today.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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