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For today’s Safety Net, I was planning on evaluating a company that fits the Valentine’s Day theme.

See’s Candies pays a dividend, but since it’s a privately held company, everything goes to Warren Buffett. And 1-800-Flowers (FLWS) doesn’t pay a dividend at all. So instead of analyzing the dividend safety of those traditional Valentine’s Day companies, we’ll look at electric and natural gas utility Dominion Energy (D).

After all, what’s more romantic than a 6% dividend yield? Believe me, your honey would prefer that over a box of chocolates.

Front and center on Dominion’s website, it says, “You can depend on our team.” But can investors depend on the company’s 6% yield?

Dominion provides power to 7 million customers in 15 states.

What it doesn’t provide is free cash flow.

The company hasn’t been free cash flow positive since 2018. And even then, it paid out significantly more in dividends than it generated in free cash flow.

In 2023 and 2024, Dominion’s free cash flow is expected to be -$1.4 billion and -$831 million, respectively. Meanwhile, it is forecast to pay out $2.2 billion in dividends each year.

Where does it find the funds to do that when it is bleeding cash?

At the end of its last quarter, the company had just $137 million in cash in the bank, so that’s clearly not where the dividend is coming from.

It’s coming from debt.

Each year, Dominion issues billions of dollars in debt. Over the past four quarters, it sold $9.3 billion in debt. In 2022, the figure was $7 billion, and in 2021, it was $10 billion.

But as you can see, the company has retired only a fraction of that debt.

Lastly, Dominion cut its dividend in 2020. The current quarterly dividend of $0.6675 per share is still nearly 30% below where it was before the reduction.

So Dominion Energy has had to issue debt to pay its dividend, and the company cut its payout a few years ago when the going got tough.

This dividend is as safe as showing up empty-handed on Valentine’s Day.

Dividend Safety Rating: F

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