Duke Energy’s (DUK) earnings in the longer term seem well placed, which might enable the targeted 4%–6% dividend growth in the next few years. Duke Energy is one of the more stable utilities, given its huge exposure to regulated operations, which ultimately facilitates earnings stability and predictability.
Duke Energy stock, like broader utilities (XLU)(IDU), was largely weak in the first half of 2018. Valuation concerns and a faster-than-expected pace of interest rate hikes pulled utility stocks down in this period. However, in the last month, Duke Energy stock has managed to gain more than 13%, outperforming broader utilities.
Duke Energy’s total returns came in at more than 7%, compounded annually, in the last five years. In comparison, utilities at large returned 11%. The total return is an apter metric of utilities’ performance. The total return considers stock appreciation and dividends paid in a particular period. Broader markets returned 13%.
The utility sector, among the most vulnerable to interest rate hikes, currently seems strong despite the rate hike in mid-June. Rising interest rates make debt servicing costlier for utilities, ultimately denting their profitability. Weakening profitability could deter utility’s dividend-paying capacity.
Top utilities showed a solid uptrend recently. You can read about how they played out against broader markets and how they’re positioned for the future in How Top Utility Stocks Fared in the First Half of 2018.