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DUK: Analyzing Duke Energy’s Dividend Profile


Dec. 27 2019, Updated 4:03 p.m. ET

Top regulated utility Duke Energy (DUK) declared a quarterly dividend of $0.945 per share in October. The dividend is set to be paid on December 16. Duke will pay a total dividend of $3.75 per share in 2019, which represents a yield of 4.2%. In comparison, utility stocks overall offer a dividend yield of 3%.

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Duke Energy’s long dividend payment history

Duke Energy has one of the longest dividend payment histories among top utilities. It has paid a cash dividend for the last 93 years. The long payment history indicates a stable and reliable dividend profile.

Duke Energy primarily operates in the Carolinas and Florida and serves approximately 7.7 million customers. Its market capitalization is currently $67.5 billion. Duke’s operations are mostly regulated, making its earnings and dividends relatively stable.

In comparison, peer Dominion Energy (D) yields 4.6%, while American Electric Power (AEP) yields 3%. AEP also has a compelling dividend payment history. It has paid a cash dividend for the last 110 years. To learn more, read What Sets AEP’s Dividends Apart?

DUK: Dividend increase

Although Duke Energy’s yield beats that of peers, its dividend growth has been marginally slower than the industry average. It has increased its dividends by 3.5% compounded annually in the last five years. Utilities increased their dividends by 4% in the same period. Dominion has raised its dividends by 9%, while AEP has increased them by around 5% in the last five years.

In the foreseeable future, analysts expect Duke Energy’s dividends to increase by 4%, which looks in line with peer forecasts. The utility aims to grow its EPS by 4%–6% compounded annually through 2023. For more on dividends, read The Top Utility Stocks with Strong Dividend Growth.

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Dividend growth plays an important role over a longer period. Despite its premium yield, Duke Energy has underperformed peers in the long term. It has returned 38% (including dividends) in the last five years, while the Utilities Select Sector SPDR ETF (XLU) has returned 65%. Utilities have mostly aligned with the S&P 500 (SPY) in this period.

Utilities have a higher payout ratio

Based on its guidance for the full year, Duke Energy’s payout ratio is around 75%. This ratio lines up with the industry average but is well below Duke’s five-year average of 90%. Utilities generally have a payout ratio of around 70%.

Duke Energy stock has underperformed peers this year. It is up only 3%, while utility stocks are up 20%, on average. Analysts’ mean 12-month target price of $96.20 for Duke Energy implies an 8% upside from its current market price of $89.30. Evercore ISI cut DUK’s target price from $95 to $92 last week.

Many top utility stocks’ upside potential looks dull after their steep rally. However, their stable dividends look attractive. To learn more about how these defensives are placed, read Utility Stocks: Is There Any Steam Left in These Defensives?


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