Swapping Dominion For WEC Energy Group

WEC Energy Group is now favored over Dominion due to a more attractive risk/reward profile and misunderstood regulatory developments. Dominion's merger arbitrage with NextEra Energy has largely played out, with valuation now in line with peers. The Wisconsin VLC Tariff, while strict, accelerates data center approvals and secures high-return, long-term contracts for WEC, supporting robust load and earnings growth. WEC targets 8% annual earnings growth and a 3.4% dividend yield, offering an 11.4% total return potential with below-average risk for a large-cap utility.

Utilities have become an exciting sector as both market prices and fundamentals are changing rapidly. We monitor the relative opportunity of the major electric utilities as factors change and have come to believe that WEC Energy Group (WEC) has become more opportunistic than Dominion (D). This article will discuss why we are trimming D in favor of WEC. We shall begin with a discussion of Dominion as it has played out and follow with a renewed thesis on WEC.

Dominion—Still Strong but Valuation is Less Appealing Due to Appreciation We have liked Dominion since our initial thesis that it would have powerful demand drivers through its access to northern Virginia, which is the epicenter of data center development. Aside from some minor delays and cost overruns on CVOW, fundamentals have played out beautifully. Dominion has successfully grown earnings and still has an impressively large growth pipeline. Dominion has had 2 main challenges, which previously caused it to trade at a discount to most electric utilities: Higher leverage at 60% debt to capital High capital needs to fund the load growth

In May of 2026, it was announced that NextEra Energy (NEE) was going to buy Dominion and form the largest electric utility ever. We liked the merger right away as it directly solves both of Dominion's challenges. NEE has access to vast amounts of low-cost capital, which means the combined company will be able to very accretively fund Dominion's growth pipeline. As the merger was announced, the market was hesitant to believe it would go through, which left a large arbitrage gap that we discussed in the above-linked article. Specifically, Dominion was trading at $68.32 (at the time of writing the above-linked article), while the value of NEE shares, into which it would convert upon merger completion, was $73.36. Furthermore, D was due just over $4.00 in dividends while waiting for closing, such that the overall upside was 13.25%.

Portfolio Income Solutions Over time, the arbitrage gap began to close as the market got more comfortable with the deal. On July 16th, D and NEE filed with regulators to approve the merger, which solidified that both parties are interested and pursuing a path to closing. That largely closed the arbitrage gap. As of 7/21/26, D is trading at $70.15 with the converted value in NEE shares worth $71.49. Portfolio Income Solutions With about 5 dividend periods until expected close date, D shareholders would get total proceeds of $74.83 for total remaining merger upside of 6.67%. Given the roughly 1.25 years until expected close, this seems about right, and I would consider the arbitrage to be essentially played out. There remains some chance the merger will get shot down by regulators, so it is not risk-free, but I consider it fairly low risk for 2 reasons: Both companies are stable and successful as stand-alone There is a hefty breakup fee that NEE would have to pay Dominion that would substantially pad any downside from a failed merger. Given the rise in Dominion's price, it is no longer trading at a material discount to peer electric utilities. 2nd Market Capital Dominion is trading at 12.14X 2027 ...