Treasury Yields Have Me Shying Away From Buying Some More Dominion Resources
Summary The stock appears to be fairly valued on next year’s earnings estimates. Increasing treasury yields has people investors leaving safe-haven yields plays such as Dominion. The company at least pays a great dividend to help stem the losses on the capital side of things. Dominion Resources (NYSE: D ) is a producer and transporter of energy. It manages its daily operations through three operating segments namely Dominion Virginia Power of DVP, Dominion Energy and Dominion Generation. On February 6, 2015, the company reported fourth quarter earnings of $0.84 per share, which beat the consensus of analysts’ estimates by $0.01. In the past year, the company’s stock is up 2.53% and is losing to the S&P 500, which has gained 14.03% in the same time frame. Since initiating my position in the growth portfolio back on December 23, 2014, I’m down 4%. I’d like to take a moment to evaluate the stock to see if right now is a good time to purchase more for the growth portfolio. Fundamentals The company currently trades at a trailing 12-month P/E ratio of 28.37, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 18.66 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (5.52), which measures the ratio of the price you’re currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 5.14%. Financials On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 3.55% with a payout ratio of 101% of trailing 12-month earnings while sporting return on assets, equity and investment values of 2.9%, 12.9% and 7%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 3.55% yield of this company is good enough alone for me to take shelter in for the time being. The company has been increasing its dividends for the past 11 years at a 5-year dividend growth rate of 6.5%. Technicals (click to enlarge) Looking first at the relative strength index chart [RSI] at the top, I see the stock approaching oversold territory with a current value of 36.65. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is below the red line with the divergence bars decreasing in height which tells me bearish momentum may continue in the name. As for the stock price itself ($72.91), I’m looking at $74.85 to act as resistance and the 200-day simple moving average (currently $70.77) to act as support for a risk/reward ratio which plays out to be -2.94% to 2.66%. Wrap Up After taking a look at the stock I think I’ve determined this is not a good place to be buying more of the stock right now. Fundamentally I believe the company to be fairly valued on next year’s earnings estimates and expensive on future earnings growth. Financially, the dividend is great and doesn’t have a lot of room to grow. On a technical basis the risk/reward ratio shows me there is more risk than reward right now. With interest rates on the ten-year treasury beginning to climb these utility names have begun to take a hit. So I’d first like to see the utility stocks decouple first from the treasury yields before I buy some more of this particular name. Disclaimer: This article is in no way a recommendation to buy or sell any stock mentioned. This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing! Disclosure: The author is long D. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
