Duke's Dividends

03/02/2016 7:00 am EST


Genia Turanova

Editor, Leeb Income Performance

Leading income expert Genia Turanova discusses the highest-yielding utility stock in the model portfolio of her Leeb Income Performance advisory service.

Duke Energy (DUK), with about $24 billion in revenues, serves 7.3 million electric retail customers and half a million natural gas customers.

Its better than 4.7% yield has been hiked in 2015, with the rate of dividend growth increased to 4%, a sign of Duke’s commitment to investor returns.

It also reflects management confidence in the core business. Regulated and commercial business account for 90% of the company.

Management expects them to grow at a 4 to 6% rate, based on planned expenditures and infrastructure investments required to comply with regulatory regulations and coal power plant conversion to natural gas.

For the latter, the recent $4.9 billion acquisition of Piedmont Natural Gas—with more than a million customers—seems like a natural (pardon the pun) fit. The merger is expected to be finalized this year.

Also, adding to the appeal of the deal, Duke and Piedmont together are partners in the $5 billion Atlantic Coast Pipeline that will be the first major natural gas pipeline to serve Eastern North Carolina.

Duke sees the potential for rate increases in the Carolinas for a possible recovery of its capital expenditures.

Of course, Duke has to resolve several issues too, including the underperformance in its international business (which accounts for 10% of revenues) and the overhang of the 2014 coal ash spill.

Further, its dividend payout ratio has moved above the target 70% ratio, although the management expects this to be temporary.

We think that Duke deserves the attention of investors. Its growth prospects are relatively strong for a utility and its dividend is safe and growing.

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