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Duke Energy’s Dividend Profile: Toe to Toe with Peers

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Part 4
Duke Energy’s Dividend Profile: Toe to Toe with Peers PART 4 OF 4

Inside Duke Energy’s Dividend Outlook

Duke Energy’s dividend outlook

Duke Energy (DUK) is targeting an annual earnings growth rate of 4%–6% through 2021, which is in line with the industry average. It currently seems well placed to achieve its targeted earnings and ultimately dividend growth.

While US electricity consumption growth has slowed, Duke Energy has been exploring options, including gas distribution and midstream operations, which have already helped fuel the company’s earnings growth.

 Inside Duke Energy’s Dividend Outlook

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With the Piedmont Natural Gas acquisition, in particular, Duke Energy’s earnings are expected to accelerate soon. Gas distribution, midstream, and renewables offer relatively higher earnings growth prospects as compared to traditional electric operations.

Notably, Duke sold its relatively riskier merchant power generation business in Latin America last year. This should give it more earnings stability and an improved return on equity going forward. (You can read more about Duke Energy’s 1Q17 earnings in Market Realist’s series How Did Duke Energy’s Earnings Trend in 1Q17?)

Higher interest rates  

One fundamental factor that could hurt US utilities going forward is the increasing rate of interest in the US. US utilities’ (XLU) dividend yield premiums over the ten-year Treasury yield (TLT) have fallen significantly, from more than 200 basis points in mid-2016 to less than 100 basis points now.

In a nutshell, some investors are eyeing Duke Energy’s dividend profile in an attractive light right now, given its stable yield, expected dividend growth, and steady capital appreciation.

You can read more about the utility industry in Market Realist’s Powering Up: All You Need to Know about Utilities.

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