Dominion Energy's Virginia data centers drive demand surge

Dominion Energy is a major utility company in the U.S. It currently offers a dividend yield of 4.8%, which is higher than the average for utilities at 2.8%. However, its past performance regarding dividends has been mixed. Recently, there has been a significant increase in energy demand from data centers, which could help boost the company's dividends again. Over the years, Dominion Energy has shifted its business model. It has moved away from oil production and focused on more stable assets like electric and natural gas utilities and energy pipelines. In 2020, the company sold its energy pipeline division to Berkshire Hathaway. This sale led to a necessary dividend cut since the company lost income-producing assets. After the sale, management promised to restore dividend growth. They did increase dividends for one year, but then paused growth to conduct a strategic review. This review lasted about a year and resulted in the sale of its natural gas utilities to Enbridge in September 2023. Despite the changes, Dominion was able to maintain its dividend. Dominion's financial health is relatively strong, but its dividend payout ratio is still high at 96% in 2024. The company aims to lower this ratio significantly before considering more dividend increases. In 2025, if earnings meet expectations, the payout ratio could drop to below 80%. A big factor in Dominion's potential for growth is the increasing demand for energy from data centers, especially in Virginia, a key tech hub. The demand from data centers, driven by advancements in artificial intelligence, rose by 88% in a short period. This surge could positively impact Dominion's revenue and help restore its dividend. Management is optimistic about the future growth of data centers. They believe that demand will continue to rise and are taking steps to capitalize on this opportunity. With strong performance expected, a dividend increase could be on the horizon for Dominion Energy.