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Significant Expected Growth Rate Earns Dominian Resource A Bullish Thesis

Summary Company’s future performance will remain strong due to strong potentials of growth efforts and capital spending. D’s performance and execution of growth projects highlight ability to attain anticipated level of earnings growth in years ahead. Analysts have anticipated a strong next five-years growth rate of 6.25% for D. I have a bullish stance on Dominion Resource (NYSE: D ); the company is efficiently executing its infrastructural growth strategy that focuses on getting a regulated asset base through the extension of its renewable energy generation project. As a matter of fact, there are a series of ongoing strong infrastructural growth projects being undertaken by the company, which will positively impact its long-term earnings growth. Given the strong potential of its strategic growth investments, I believe the company’s cash flow base will remain strong in the years ahead, due to which D will continue to increase its dividends at a decent pace, which will positively affect the stock price. Growth Investments Are Keeping Me Bullish on D’s Long-Term U.S. utility companies have accelerated their growth investments in order to strengthen their infrastructure and better serve customers. Owing to these hefty growth investments, utility companies will experience growth on their top and bottom-line numbers. Like all other companies in the U.S. utility sector, D has also designed a growth strategy that is centered on the idea of establishing a large and improved energy generation infrastructure through hefty capital investments. In fact, the company has announced that its average annual spending till 2020 will be in a range of $1.2 billion. The following graph details D’s capital investments plan from 2014 to 2020. (click to enlarge) Source: Investors Presentation Currently, there are several ongoing construction projects of the company, which I believe will act as important drivers of its long-term growth; in the first half of 2015, D invested more than $500 million in electric transmission projects. The company is working hard to get an extensive network of regulated, renewable energy generation resources through its hefty investments, in order to comply with strict carbon dioxide regulations. In this regard, two of D’s promising gas supply-based renewable energy generation projects, the Atlantic Cost pipeline (ACP) and Cove point facility, are currently progressing in-line with the schedule. At Cove point, the overall project is 31% complete and around 90% of engineering is near to completion. And for ACP, recent reports reveal that ACP is running ahead of the management’s original plan, with operations expected in November ’18. Due to the effectiveness exhibited by ACPs’ management, I believe investor confidence will improve, which will portend well for the stock price. Moreover, there are several other promising gas generation projects at D, like the project to build 1358MW of natural gas combined cycle facility in Brunswick country, which is proceeding well by staying on-time and on-budget; so far, around 75% of work related to this project is complete and it is expected to begin service in mid-2016. Also, the company has filed for construction approval of 1,588MW gas-fired combined cycle facility in Greensville country, VA, which is expected to be in service in December 2018. The plant is expected to be one of the largest combined cycle gas plants in North America, which will be built under a rate rider, if approved. Apart from its gas-based energy generation projects, the company has been allocating sufficient funds to develop solar energy generation resources. D had invested $700 million to build multiple solar-energy generation projects in Virginia, which will in supply total 400MW of electricity. And under this plan, the first step was taken in January 2015, when the company filed a case for rate rider and CPN for a 20MW solar facility at its Remington power station. If approved, the 20MW facility will be in service by late 2016. In addition, D recently acquired a 265MW solar farm in Utah from SunEdison (NYSE: SUNE ) for $320 million , as part of a joint venture that the two companies had entered into last month. Given the fact that utility companies are growing their renewable asset bases to comply with environmental regulations, I believe all of the above-mentioned renewable energy generation projects of the company will allow it to generate strong sales and healthy earnings in the years ahead. Owing to the strong growth potentials attached to these projects, D’s management is confident of achieving its promising earnings growth target of 6% to 7% through 2020. Also, analysts have projected healthy next five-years earnings growth of 6.25% as shown below. (click to enlarge) Source: Nasdaq.com Investors Remain Rewarded At D Over the past few years, the company has maintained its policy of paying healthy dividends to shareholders, which are backed by its cash flows. D currently offers an attractive dividend yield of 3.77% . Owing to their strong infrastructural growth and development-related investments, all of which will ensure strong cash flows for D, the company’s management has affirmed that they will continue to increase dividends in future, as shown in the graph below. (click to enlarge) Source: Investors Presentation Also, given D’s strong growth prospects, analysts have projected consistent increases in the company’s book value and cash flows per share, as shown below. (click to enlarge) Source: 4-Traders.com Risks The company continues to face the risk of lagging behind the management’s expectations, due to possible construction delays or cost overruns at its ongoing projects. Moreover, unforeseen negative economic headwinds, utility regulations, rate case risk and unfavorable weather conditions are the key risks that might adversely affect D’s future stock price performance. Conclusion I believe D’s performance will remain strong in future due to the strong potentials of the company’s growth efforts and capital spending directed at strengthening its asset base. Also, the company’s performance and execution of growth projects highlight its ability to attain the management’s anticipated level of earnings growth in the years ahead. Moreover, the strong growth efforts will create a strong and stable earnings base for D. Also, the company’s growth efforts will portend well for its cash flows and will allow the company to consistently increase dividends in future years, which will positively affect the stock price. Also, analysts have anticipated a strong next five-years growth rate of 6.25% for D. Due to the aforementioned factors, I am bullish on D. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Vanguard Dividend Growth Fund: A Solid Core Holding

Summary VDIGX has low expenses and has outperformed its peers over the years. Don Kilbride looks for stocks that can pay a steady and growing stream of dividends. Vanguard also offers a Dividend Appreciation Index fund which will compete with VDIGX. Overall Objective and Strategy: Growth and Income The Vanguard Dividend Growth Fund (MUTF: VDIGX ) seeks to provide a growing income stream along with long term capital growth by investing in high quality companies that not only pay a dividend, but also have good prospects for growth in both earnings and dividends. Dividend yield is expected to be above the market average, but stocks with very high dividends but no growth are avoided. Stays diversified across all market sectors. Can allocate up to 25% of assets to foreign securities. Benchmark: the NASDAQ U.S. Dividend Achievers Select Index. Fund Expenses The expense ratio for VDIGX is 0.32% which is very low for an actively managed equity fund. Morningstar has computed the average expense ratio of similar funds to be 1.04%, so you pick up over 70 basis points of relative outperformance through lower expenses alone. Vanguard does not offer a lower cost Admiral share class for this fund. Vanguard does offer a passively managed index fund with similar goals to VDIGX – the Vanguard Dividend Appreciation Index Fund (MUTF: VDADX ) which requires a $10,000 minimum investment with an expense ratio of only 0.10%. VDADX is weighted more to mega-cap companies and has a higher allocation to the Consumer Staples sector than VDIGX. Minimum Investment VDIGX has a minimum initial investment of $3,000. Past Performance VDIGX is classified by Morningstar in the “Large Blend” or LB category. Compared with other mutual funds in this category, VDIGX has performed quite well, largely because of its low expenses and consistent stock selection. These are the annual performance figures computed by Morningstar since inception in December 2013 (as of September 14, 2015). Investors who compare their performance to the S&P 500, might be a little disappointed with the recent performance of VDIGX, since its five year performance of 13.56% lags the 14.13% performance of the S&P 500. But I wouldn’t blame the fund for this, since its Dividend Appreciation strategy has been a bit out of favor for the last five years. I believe the fund should outperform the S&P 500 over a full market cycle including some bear market periods. VDIGX Category (LB) +/- Category Percentile Rank in Category YTD -3.85% -4.48% +0.63% 41 1 Year +1.08% -1.58% +2.66% 17 3 Year +11.79% +11.37% +0.43% 48 5 Year +13.56% +12.58% +0.97% 34 10 Year +8.42% +6.25% +2.17% 4 15 Year +5.07% +3.97% +1.10% NA Source: Morningstar Mutual Fund Ratings Lipper Ranking : Funds are ranked based on total return within a universe of funds with similar investment objectives. The Lipper peer group is Equity Income. 1 Yr #21 out of 509 funds 5 Yr #23 out of 299 funds 10 Yr #5 out of 192 funds Morningstar Rating : Overall 4 Stars (out of 1,388 funds) 3 Yr 3 Stars (out of 1,388 funds) 5 Yr 4 Stars (out of 1,225 funds) 10 Yr 5 Stars (out of 872 funds) Fund Management The fund has been managed by Donald Kilbride since February 2006. Kilbride seeks to build a portfolio that produces a steady and growing stream of dividends. He looks for companies that have the ability and the willingness to increase their dividends over time. Kilbride does not buy non-dividend paying companies that may begin to offer a payout in the future- he wants the dividends now. Volatility Measures Beta: 0.91 (less volatile than the S&P 500) R- Squared: 0.93 (fairly high correlation with S&P 500) Sharpe Ratio: 1.39 Standard Deviation: 9.27 Comments VDIGX is a concentrated fund and is not an index hugger. It has $24 billion in assets invested in only 46 securities. These are the top ten holdings as of June 30, 2015: Top 10 Holdings % Weight United Parcel Service (NYSE: UPS ) 3.21% Microsoft (NASDAQ: MSFT ) 2.92% UnitedHealth Group Inc (NYSE: UNH ) 2.90% TJX Companies (NYSE: TJX ) 2.87% Honeywell (NYSE: HON ) 2.74% Nike Inc (NYSE: NKE ) 2.69% ACE Ltd (NYSE: ACE ) 2.68% Coca-Cola (NYSE: KO ) 2.60% Accenture PLC (NYSE: ACN ) 2.60% Praxair Inc (NYSE: PX ) 2.49% VDIGX is an excellent mutual fund that can serve as a core holding, especially in a retirement account. In 2008, it held up relatively well losing only 25.57% versus a 37.79% loss for its category peers and a 37% drop in the S&P 500. In times of severe financial stress, VDIGX is a good way to continue investing, since its holdings are very solid and unlikely to go into bankruptcy. Vanguard has set up an interesting competition between VDIGX and VDADX (which is pegged to the Dividend Appreciation Index). These two funds are good test vehicles for active versus passive management using the same basic strategy and it will be interesting to see whether Kilbride can outperform over the longer term. Last year, there was a friendly controversy here on Seeking Alpha between Geoff Considine and Larry Swedroe. Considine listed reasons why dividends are a valid basis upon which to select stocks, while Swedroe disagreed citing some research from DFA. Take a look at this Seeking Alpha article from last year for more information- ” Why Dividends Matter: A Review of Recent Research “. Considine later published a summary on Advisor Perspectives- ” Understanding the Controversy over Dividend‐Based Investing “. I believe that dividend-based investing has a place in any diversified portfolio, especially in retirement accounts. But for those in a higher tax bracket, I think it also makes sense to hold some non-dividend paying stocks (like Berkshire Hathaway (NYSE: BRK.A )) in taxable accounts. Over time, the tax savings will add up. Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in VDIGX over the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

FLOT Vs. FLRN: The Best Floating Rate ETF

The Fed rate hike may be just around the corner and investors have started probing every possible safe option in a likely rising rate environment. A barrage of solid economic data, including a more-than-seven-year low unemployment rate in August, an improving service sector, decent consumer confidence, and a pretty strong housing market raised speculations over the first rate hike in more than nine years. Investors should note that while fixed income investing underperforms in a rising rate environment, there are several plays, even in the bond market, that could ward off rising rate worries. A floating rate instrument is such an option. Floating rate notes are investment grade bonds that do not pay a fixed rate to investors but have variable coupon rates that are often tied to an underlying index (such as LIBOR) plus a variable spread depending on the credit risk of the issuers. Since the coupons of these bonds are adjusted periodically, these are less sensitive to an increase in rates compared to traditional bonds. Unlike fixed coupon bonds, these do not lose value when the rates go up, making the notes ideal for protecting investors against capital erosion in a rising rate environment. Below we highlight two popular floating rate bond ETFs and try to figure out which one is a better bet at the current level: iShares Floating Rate Note ETF (NYSEARCA: FLOT ) This is the most popular fund in the floating rate securities market space that follows the Barclays US Floating Rate Note < 5 Years Index. Holding 458 securities, the fund has an average life of 1.78 years and effective duration of 0.14 years. The product has amassed over $3.60 billion in its asset base while trades in volume of 650,000 shares per day on average. Sector-wise, the fund invests over half of its assets in banking followed by 8.4% weight in areas with no guarantee. Companies like JPMorgan (NYSE: JPM ) (4.12%), Goldman (NYSE: GS ) (4.07%) and Citigroup (NYSE: C ) (3.49%) are top three holdings of the fund. Bonds with 1-2 years of maturity have the highest exposure of 33.17% in the fund while bonds with 0-1 years take the second position with 28.69% weight. Expense ratio comes in at 0.20%. The fund is off 0.02% so far this year (as of September 11, 2015) and yields about 0.48%. SPDR Barclays Capital Investment Grade Floating Rate ETF (NYSEARCA: FLRN ) This ETF tracks the Barclays U.S. Dollar Floating Rate Note < 5 Years Index with average maturity of 1.73 years and modified duration of 0.12 years. It holds 445 securities and has been able to accumulate $387 million in its total asset base. The fund charges 15 bps in annual fees while volume is moderate at under 30,000 shares. Sector-wise, the product is tilted toward the financial sector with 61% exposure followed by the industrial sector (25.43%). Individual holding-wise, no stock holds more than 1.60% in the fund. Goldman gets the top priority followed by Kommunalbanken (0.97%) and Toronto-Dominion Bank (NYSE: TD ) (0.91%). Here also, bonds with 0-1 years and 1-2 years of maturity hold top positions with 30.88% and 36.21%, respectively. It has lost 0.3% in the year-to-date timeframe and has a dividend yield of 0.59% (as of September 11, 2015). Which One is the Better Bet? While both options are pretty intriguing in a rising rate environment and quite similar in nature, there's a subtle difference between the two that might give one ETF an edge over the other in a rising rate environment. The chart below details the two bond ETFs: FLOT FLRN Effective Maturity 1.78 years 1.73 years Effective Duration 0.14 years 0.12 years Default Risks Slightly higher FLRN Slightly lower than FLOT Interest Rate Risks Slightly higher FLRN Slightly lower than FLOT Concentration Risks Slightly High Slightly Low Expense Ratio 0.20% 0.15% Yield 0.48% 0.59% To sum up, both FLOT and FLRN both have high exposure in the better-performing financial sector. Both handle around 450 bonds and certain international exposure, but are dollar-denominated in nature. Yet, FLRN appears a less risky product compared with FLOT going by various risk matrixes. FLRN is cheaper too. Link to the original article on Zacks.com