Will Dominion Resources (NYSE:D) Be Improving Its Dividends In The Near Future?

According to news reports of last week, Dominion Resources (NYSE:D) will be acquiring Carolina Gas Transmission very soon. The deal has been sealed with SCANA (NYSR: SCG) for a total price of $493 million. Some of the market experts are of the opinion that this is one big gamble on part of Dominion Resources. However, the other set of analysts believe that this deal will improve the profitability of Dominion Resources (NYSE:D) by many folds for years to come.

Where market analysts are wondering about the profitability of this deal, the investors are only concerned with their dividends. Let’s see if the deal will affect the dividends.

There was a time when utilities industry was thought to be the highest dividend paying sector. However, the situation has changed over the years, especially after the emersion of alternative energy paths, latest technologies and fluctuating energy prices.

Gas transmission, however, is an area that offers steady revenues for each unit of gas that is transferred from the production area to energy end. With the addition of Carolina Gas Transmission in the portfolio of Dominion Resources (NYSE:D), the total length of the company’s pipelines would come to 1,500 miles together with a transmission of 700 million cubic feet daily. Moreover, according to the estimates, the gas production at Carolina Gas is expected to rise by 820 millimeter cubic feet daily by the end of the year 2018.

According to the chairman of Dominion, Thomas Farrell II, who is also the chief executive and president of the company, this deal will serve as a growth tool for Dominion Resources (NYSE:D), for the company will be able to extend its operations in the region of Southeast. He further mentioned that the company’s EBITDA will rise significantly over the next few years, for the pipeline enjoys a reputation of safety and reliability.

Where the profits and revenues of the company will rise after this deal, the most important factor in determining the success of utilities is the cash and debt ratio. The debt allows for improving the infrastructure of the pipeline and transmission of gas whereas the cash allows for the continued operations of the company, including the distribution of dividends. The current dividend yield of Dominion Resources (NYSE:D), 3.1 percent, is lower than that of the industry average. The debt level of the company, on the other hand, is quite high. The figures are half the assets ratio and double the equity ratio, which means that the aggression level of Dominion over its debts is almost 80 percent higher than its fellow companies.

The company, in order to keep the dividends and other operations running, came up with a master plan. Dominion entered into a partnership a while back in order to serve as a holding company with low tax ratio.

Dominion expects its EPS (earnings per share) to improve by 5 or 6 percent once the deal is implemented, and the increase in EPS will automatically improve the dividends yield.