As an income-driven investor always in search of a sustainable mid-to-higher yielding energy play, I've decided to shift my focus to the diversified utilities sector and highlight several of the reasons why I'm staying fairly bullish on shares of Duke Energy (NYSE:DUK).
Recent Performance & Trend Behavior
On Friday, shares of DUK, which currently possess a market cap of $50.22 billion, a forward P/E ratio of 15.58, and a dividend yield of 4.39% ($3.12), settled at a price of $71.13/share. Based on their closing price of $71.13/share, shares of DUK are trading 0.43% below their 20-day simple moving average, 3.18% above their 50-day simple moving average, and 4.31% above their 200-day simple moving average. These numbers indicate a short-term downtrend and a mid-to-long-term downtrend for the stock which generally translates into a slight selling mode for most near-term traders and moderate buying mode for most long-term investors.
5-Year Dividend Growth
Since November 12, 2008, the company has increased its quarterly distribution five times over the last 60 months (representing an over increase of 13.04% over the last five years), with the most recent increase having taken place in August of this year. The company's forward yield of 4.39% ($3.12) coupled with its ability to continuously increase its distribution over the last several years, make this particular energy stock a highly considerable option, especially for those who may be in the market for a sustainable stream of quarterly income. Income-driven investors should note that Duke Energy will pay its next quarterly dividend of $0.78/share on Monday, December 16, which will be for those shareholders who were on record as of November 15.
Recapping Duke Energy's Third Quarter Performance
According to my fellow SA colleague, Equity Watch, Duke Energy recently reported a satisfactory financial performance for 3Q2013. The company reported adjusted earnings per share of $1.46 for 3Q2013, down $0.01 as compared to the corresponding period last year, missing consensus estimates by 3%. Revenues for the recent third quarter totaled $6.7 billion, down approximately $10 million as compared to the corresponding period last year. The company's financial performance for the third quarter was adversely affected by higher depreciation and amortization expense and unfavorable weather conditions. Going forward, the company's management anticipates experiencing an EPS growth rate of 4%-6% in the upcoming years and recently narrowed its full year 2013 adjusted diluted EPS guidance range to $4.24-$4.45 per share from the prior guidance range of $4.20-$4.45.
Potential Sale of its Midwest Assets
On November 22, shares of DUK were trading a bit higher on the fact that Bloomberg Energy had said, via tweet, "Duke Energy said to work with Citi on sale of Midwest power plants". These plants, which make up a large portion of the company's commercial energy segment, could fetch as much as $1.5 billion to $2.0 billion if they are sold together as a package rather than individually on a one-by-one basis.
What's the basis for the potential sale, you ask? In my opinion the answer most likely comes from the fact that the company's commercial energy segment has reported a significant decline in earnings between Q2 and Q3 of this year, and therefore and asset sale could be the best way to resolve the current decline in segment-based earnings.
According to Duke Energy's most recent 10-K, there are a number of risk factors all investors should consider. These factors include but are not limited to the fact that deregulation or restructuring in the electric industry may result in increased competition and unrecovered costs that could adversely affect Duke Energy's financial position, results of operations or cash flows and its utility businesses, and the fact that operating results may fluctuate on a seasonal and quarterly basis and can be negatively affected by changes in weather conditions and severe weather as was the case during the third quarter of 2013.
For those of you who may be considering a position in Duke Energy, I'd keep a watchful eye on a number of catalysts over the next 12-24 months as each could play a role in the company's long-term growth. For example, near-term investors should focus on the company's recent performance and trend behavior, while long-term investors should focus on the potential sale of the company's Midwestern assets and whether or not such a sale could be the start of a potential pattern that consists of the continued sale of any underperforming assets over the next 12-24 months.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in DUK over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.