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Is Duke Energy’s Premium Yield Really the Best in the Industry?

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Jan. 17 2017, Published 4:39 p.m. ET

Duke Energy’s stable yield

The largest utility by market capitalization, Duke Energy (DUK), has paid quarterly dividends for the past 90 years. This is not uncommon for any utility stock. The growth rate of these dividends over the longer period of time is what makes the difference.

Duke’s dividends have grown fairly well over the past few years at a rate of 2.5%, compounded annually. It recently declared a dividend of $0.86 per share for 1Q17. Now let’s see how Duke’s dividends are placed this year.

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Duke Energy’s dividend growth has not been the best in the US utility industry, though its premium yield of 4.5% is among the highest. With the recently added Piedmont Natural Gas, Duke’s earnings are likely to accelerate, which may boost dividends, too. (We’ll discuss factors impacting Duke’s dividends later in this series.)

Will Duke raise its dividend this year?

Barring one or two instances, Duke Energy’s yield has not fallen below 4% in the past ten years. Given the slowing pace of the electricity consumption, US utilities’ dividends have only marginally increased in the past several years. However, Duke’s expected dividend growth rate is expected to overcome inflation.

Southern Company (SO) and FirstEnergy (FE) yield nearly 4.6%. Renewables giant NextEra Energy (NEE) yields nearly 3%. Utilities Select Sector SPDR (XLU) and SPY yield 3.5%. Duke’s yield, hence, seems very well placed, as compared to peers and broader markets. Duke Energy stock has also been relatively stable in exchange markets, and this may shape an attractive risk-and-reward proposition for conservative investors.

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