Duke Energy’s Dividend Outlook and Growth Prospects

Duke Energy’s (DUK) earnings in the longer term seem well placed, which might facilitate the targeted 4%–6% dividend growth. As we discussed previously, Duke Energy’s huge exposure to regulated operations provides earnings stability and predictability.

Duke Energy stock has been weak in the last few months. Broader utilities started their downward streak in mid-December 2017 due to tax reforms and the Fed’s interest rate hike. Since then, Duke Energy stock has corrected 15% and marginally underperformed its peers (XLU).

Importantly, Duke Energy has significantly underperformed its peers in terms of total returns in the long term. In the last five years, Duke Energy returned 6% compounded annually. Broader utilities’ total returns were ~10% compounded annually during the same period. The total return is a more apt metric to measure utilities’ performance. The total return considers stock appreciation and dividends paid in a particular period.

The Fed is targeting three quarter-point rate hikes this year. Rising interest rates, tax cuts, and increasing Treasury yields have dented utility stocks in the last few months. Going forward, we could see intermittent weakness in defensives if these factors continue to dominate.

Utilities (IDU) are trading at their yearly lows. Read S&P 500 Utilities at a 52-Week Low Offer a Big Gain Potential and Does Dominion Energy’s Deal with SCANA Look Uncertain? to learn more.