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Summary

  • The company has a really high dividend payout ratio.
  • The company has very low earnings growth potential.
  • Stocks in the utilities sector like Duke will take a back seat with the economy moving upwards lately.

The last time I wrote about Duke Energy (NYSE:DUK) I stated, "Due to the tiring bullish technicals, fair valuation on earnings, and expensive valuation on growth I'm not going to be buying a position at this price." Since the last article, it decreased 1.69% versus the 3.5% gain the S&P 500 (NYSEARCA:SPY) posted.

On May 7, 2014, the company reported first-quarter earnings of $1.17 per share, which beat the consensus of analysts' estimates by $0.05. In the past year, the company's stock is up 2.03% excluding dividends (up 6.44% including dividends) and is losing to the S&P 500, which has gained 15.21% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if it's worth buying more shares of the company right now for the utilities sector of my dividend portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 25.84, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 14.78 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $4.76 per share and I'd consider the stock inexpensive until about $71. The 1-year PEG ratio (6.93), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 3.73%. Below is a comparison table of the fundamental metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

Target Price ($)

PEG

EPS next YR (%)

15Aug13

69.02

24.56

15.14

4.56

68

4.42

2.19

06Oct13

66.43

23.73

14.58

4.56

68

4.21

5.63

07Nov13

72.92

26.04

16.01

4.56

68

4.44

5.86

23Feb14

71.49

21.28

15.06

4.75

71

5.08

4.19

26May14

70.28

25.84

14.78

4.76

71

6.93

3.73

Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 4.44% with a payout ratio of 115% of trailing 12-month earnings while sporting return on assets, equity and investment values of 1.7%, 4.7% and 4.5%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 4.44% yield of this company is good enough for me to take shelter in for the time being. The company has been increasing its dividends for the past 9 years at a 5-year dividend growth rate of 2.7%. Below is a comparison table of the financial metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

15Aug13

4.52

92

2.1

5.8

3.0

06Oct13

4.70

111

1.8

4.9

3.0

07Nov13

4.28

111

1.8

4.9

3.0

23Feb14

4.36

93

2.1

5.9

3.0

26May14

4.44

115

1.7

4.7

4.5

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock in middle ground territory with downward trajectory and a value of 41.84. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is below the red line with the divergence bars increasing in height, indicating bullish momentum. As for the stock price itself ($70.28), I'm looking at the 50-day simple moving average (currently $70.97) to act as resistance and the 200-day simple moving average (currently $68.27) to act as support for a risk/reward ratio which plays out to be -2.86% to 0.98%.

Recent News

  1. The company and the EPA came to an agreement on cleaning up the coal ash spill into the Dan River in North Carolina from back in February. The EPA will oversee the cleanup with federal wildlife officials while Duke will reimburse the government.
  2. The company has announced that it's going to build a 750 megawatt gas-fired power plant in South Carolina. The new plant will be built at the site of an existing coal-fired plant.
  3. The company is moving away from coal-fired plants towards gas-fired ones as plans have also been announced to build three plants in Florida totaling 2,000 megawatts. The total cost of the plants is estimated to be $1.86 billion.

Conclusion

Now that the Ukraine situation has subsided a bit, safe haven stocks like Duke have come out of favor and that's why the stock has been declining since the turn of the month. Fundamentally, the company is inexpensively priced based on next year's earnings estimate but expensive on future growth potential. Financially, the dividend is high and the efficiency ratios have decreased. On a technical basis, I believe the longer term trend is downwards. Due to the tiring high dividend payout ratio, low earnings growth potential, and deteriorating financial efficiency ratios, I'm not going to be pulling the trigger right now.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Source: Passing Up On High-Yielding Duke