The energy landscape is on the brink of a demand boom, with artificial intelligence (AI) leading the charge. By 2030, the AI market could hit a whopping $100 billion, and the technology requires a lot of power - about as much electricity as the entire nation of Japan by 2026, according to IEA estimates.
Meanwhile, renewables are racing towards a potential $2 trillion valuation by 2030. It's a potential gold rush for utility providers at the intersection of data center tech and green energy - like Dominion Energy (D), for example.
The $40 billion utility company is expanding its renewable energy portfolio with substantial investments in solar and wind projects, while also gearing up to meet the soaring power demands of the world's largest concentration of data centers in Northern Virginia. This strategic alignment with future energy and technology needs not only promises diverse and sustainable growth, but also enhances Dominion's appeal as a high-yield investment in a world pivoting towards clean energy and high-tech infrastructure.
With a forward dividend yield topping 5%, Dominion offers an attractive income stream for investors - even among the high-yield utility group. But the real draw here may be the company's exposure to the AI-driven data center boom, and its multi-billion dollar investments in renewable energy projects.
Let's take a closer look at why income and growth investors alike may want to scoop up shares of this dividend stock.
Dominion's Stock Performance and Dividend Status
Dominion Energy (D) is making waves in the utility world, not just by keeping the lights on and homes warm, but by diving headfirst into the future with renewable energy projects and AI-powered data center solutions. It's a bold move that places them at the cutting edge of tech and green energy, a spot where not many utility giants dare to tread.
The ride hasn't been smooth sailing, though. Over the last year, Dominion stock has only really started to gain traction since finding a base around $40 in October. They're still chipping away at a 52-week deficit of 13.2%, but D has rallied 22.6% in the last six months, and the utility stock is up by a very respectable 6% on a YTD basis.
And let's not forget about the dividends. The company is paying $0.67 per quarter, which translates to a forward yield of 5.5% at current levels.
While there are no imminent dividend hikes on the horizon, the company just backed its commitment to the $2.67 per share annual payout during the March 1 investor meeting.
What's Driving Growth at Dominion?
When we peek into Dominion's financials, the numbers tell a story of transition. The company missed Wall Street's estimates for fourth-quarter earnings and revenue, which arrived at $0.29 per share and $3.5 billion, respectively.
Notably, CFO Steven Ridge said on the Q4 conference call that “we view 2023 as a transition year for the company,” with Dominion working to divest some assets as part of a broader restructuring effort.
To that point, the stock rallied after earnings, as investors and analysts alike cheered the news that Dominion had secured the sale of a noncontrolling stake in its Coastal Virginia Offshore Wind (CVOW) project.
More recently, the EPA issued the final air quality permit for the CVOW project earlier this month, and Dominion launched the first Jones Act-compliant offshore wind turbine installation vessel to support construction.
Along with the green light for over 750 megawatts of new solar projects, the utility company is seriously beefing up its eco-friendly creds. And investors should take note - the cost of those green projects is expected to add $1.54 to the average utility customer's bill, per Dominion.
However, CFO Ridge says the company is being careful not to front-load earnings with tax breaks: “We've made specific commitments around not pursuing unregulated solar investments for the purposes of generating upfront operating earnings from tax credits or reflecting gains from certain asset sales and operating earnings,” he noted, and detailed additional steps Dominion is taking to address “earnings quality" going forward.
And perhaps most compelling of all, Dominion isn't just any utility company; it's the main power supplier for Northern Virginia, a.k.a. the "Data Center Capital of the World." With data centers to support AI demand eating up more and more square footage, Dominion has described the surging power demand as a “paradigm shift.”
In fact, the scramble to supply a new rush of customers with energy inspired Dominion to strike deals with some data centers based on scaled capacity loads that increase over time. IEA projections forecast that power demand in Dominion's multi-state zone could be on par with the demand of France within 15 years.
What's the Analyst Forecast for Dominion Stock?
Despite the utility company's “transition year,” the analyst community is keeping a fairly positive outlook on Dominion's future.
Out of 15 analysts weighing in, the consensus is to "Hold" the stock. Breaking it down, 3 analysts are bullish with a “strong buy” rating, 11 are playing it safe with a “hold,” and just one is bearish with a “moderate sell" recommendation.
They've pegged the mean target price for Dominion Energy at $49.17, just below Friday's close. However, the Street-high target of $53 gives the stock room to run a little higher.
Looking ahead, Dominion Energy is on the cusp of growth, fueled by the booming demand for data centers in its key markets. While the once-boring utility stock may have been passed over by investors and analysts alike amid its restructuring, the stock now looks well-positioned to offer a blend of growth from clean energy and tech demand, complemented by reliable dividends.
For investors seeking steady passive income - with the potential for capital appreciation that just might catch Wall Street off-guard - this high-yield stock could be the gem your portfolio's been waiting for.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
