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Stock Strategist

Improved Business Mix Sparks Moat Upgrade

Dominion is uniquely positioned to invest in high-ROIC energy infrastructure.


We assign a wide Morningstar Economic Moat Rating to  Dominion Resources (D), one of the largest utilities in the United States with operations throughout the Mid-Atlantic region. Morningstar believes a regulated utility can establish a wide moat if its nonutility businesses are a material portion of earnings and have a sustainable competitive advantage. Dominion's investments in regional energy infrastructure projects during the next five years should result in wide-moat businesses generating more than 50% of earnings by 2019, up from about 40% in 2013. The remaining earnings are primarily from narrow-moat regulated utilities in states with long histories of constructive regulatory frameworks, industry-leading sales growth, and investment opportunities to support increasing electric reliability requirements. Dominion's electric utility assets are located in an area of the country that requires high reliability for Internet traffic and defense operations.

Marcellus and Utica shale gas production growth in Dominion's core territory is driving most of the firm's wide-moat gas pipeline and liquefied natural gas investments. These include expansion or modification of Dominion's existing natural gas infrastructure to bring this gas to domestic and international markets. We also give the management team an Exemplary Stewardship Rating for its ability to generate shareholder value. Dominion recently sold its no-moat retail electric business and has been selling or retiring its no-moat merchant power plants for the past several years, enhancing its enterprisewide competitive advantage.

Charles Fishman does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.