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Duke Offers A Solid Dividend At A Great Price


  • Management predicts dividend growth of at least 4%.
  • Earning support the current dividend, and earnings growth should more than cover a growing dividend.
  • At the current market price of just over $75, DUK is a great opportunity for dividend growth investors.

At the current market price of just over $75, the dividend and projected dividend growth more than justifies the price. I think Duke Energy (NYSE:DUK) has the potential to be a great opportunity for dividend growth investors.

What did I think of DUK last time?

Back on July 18th just after Duke had raised its dividend, I wrote about why it was a good buy. I liked that Duke had continued to rebuild its earnings and revenues after it sold off the Latin American business. I liked that it had just announced an increase in its well supported dividend. And the share price was then below what I calculated for a buy price based on the current dividend and its likely future growth.

Below is the calculation I did to determine a good buy price for DUK shares. I used the just declared dividend to project the next 12 months of dividend payments, $3.56. Based on management saying they wanted to increase dividends by 4%-6% each year till 2021, management projections of earnings growth, and the latest dividend increase of 4.1%, I estimated that the dividend could be grown by about 4.5%. Based on the current yield, I used a terminal growth rate of 2%. Because earnings and revenues were declining I wanted a 10% discount to the NPV of the dividends which made my buy price anything under $84.

What new information do we have now?

As most people know interest rates have been rising lately and the Federal Reserve has plans to raise the over-night rate several times this year. In his first time testifying to Congress, Fed Chairman Powell’s testimony has pushed rates higher today. Among other stocks, this has pushed the share price of utilities down. Depending on a number of factors, I think this price decrease could represent an opportunity. One thing

This article was written by

PendragonY profile picture

PendragonY is a software engineer and has been developing applications for various industries for over 30 years. He has been managing his own investments for 40+ years. Formerly a value investor, he switched over to a more income based approach after the 2008 financial crisis.

PendragonY contributes to the investing group High Dividend Opportunities led by Rida Morwa and a team of other top Seeking Alpha income investing analysts. The service focuses on sustainable income through a variety of high yield investments with a targeted safe +9% yield. Features include: model portfolio with buy/sell alerts, preferred and baby bond portfolios for more conservative investors, vibrant and active chat with access to the service’s leaders, dividend and portfolio trackers, and regular market updates. The service philosophy focuses on community, education, and the belief that nobody should invest alone. Learn More.

Analyst’s Disclosure: I am/we are long DUK. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (53)

PendragonY profile picture
So on the 16th I got a payment from DUK of $207. And today D gave me $258. $300 more in dividends and I will have over $1500 in cash and will buy some more shares of SO.
I just bought another lot of PPL @6% yesterday, and it's still over 6% today. Very close to a full position so I'll grab some D, SO, and Duk once they hit my buy price, and D is closest right now. Those are some great divs received, and I look forward to the time I can be getting $200+ from a single position.
PendragonY profile picture

Sounds like an excellent plan.
Mike Nadel profile picture
All of the utes are down today, with most showing fairly regular trade volume.

DUK, however, is already at almost twice its normal volume. I took around to see why so much activity and can't find anything. Maybe one or two big investors (institutions perhaps?) dumped a ton of stock today?

I'm not a DUK shareholder (I own WEC, D, SO, NEE and SRE) but am not opposed to owning it eventually.

PendragonY profile picture

I see that Duke lost an appeal trying to get a longer license to manage a hydro project in the Charlotte area. http://bit.ly/2D7Wjjz

Also this article seems to indicate that Duke's request for a rate hike isn't going well with the NC state utility customer advocate calling for a rate cut rather than an increase http://bit.ly/2G3rI9Q;_ylu=X3oDMTByMjB0aG5z...
Mike Nadel profile picture
Thanks for that, Pen.

Duke is my provider, so I'm fairly up on this stuff, but I hadn't heard about the appeals court denying Duke's request. All it means is that Duke controls that stretch of the river until 2055 instead of 2065.

The rate hike/cut thing has been a bone of contention ever since Duke insisted that its customers (rather than shareholders) would have to pay to clean up toxic coal ash. It's an ongoing debate. (BTW, that link didn't work for me when I clicked on it.)

If I had to guess, it would be the first news item you linked - combined with the rest of the news of the day that has nothing to do with Duke - causing this volume of trading.

PendragonY profile picture

I don't suspect that the appeals court loss will have a long term effect, but it might cause a pop until folks read what it really means.

The link to the second article only gives me the headline, you have to pay for the rest.
my Dad owns this one since 2010 and has been reinvesting the divvies too.. good article.. DUK is a good long term utility .... IMO!
PendragonY profile picture
Yeah, I think its a good long term hold as well.
InvestRite#1 profile picture
Looking out at DUK's total return for last year at 12.86% (M*), then going forward expecting more share price drops, when the rate increase by Powell is announced, three or four more times, I can only guesstimate that at best 2018 will be a flat Total Return year. I could be mistaken.
I'm just looking at the best YOC for picking up shares along with good value and higher yield.
PendragonY profile picture
First, TR isn't a big issue if you aren't selling any time soon. Second, I don't really buy utilities for capital gains. Third, I keep seeing people always focusing on trying to get the best. I think you are letting the best be the enemy of good enough. The price right now is more than good enough. Hoping for an even better deal risks losing a very good one.
@ PendragonY

Your reply-comment captures my thinking to a T.
InvestRite#1 profile picture
Thanks for the clarity PendragonY
Panzerman profile picture
Duke Is my provider in Orlando Florida. See their trucks and operations all around. Based on my personal interactions with them, the web site, call center, quality of service, I must give them an A grade. That said, I am looking to add DUK to my portfolio at about 70 as I am a tight wad looking for a super bargain. LOL.
PendragonY profile picture
I lived in Orlando during the later part of the 80s, and my brother still lives near there (Winter Park). I have heard good things about there service. Me, I am in Dominion's service area and they do pretty good. Usually power outages don't last long. Had a big wind storm here on Friday that knocked down a whole bunch of trees. Just got the power back on.
Not if other holdings diversify the portfolio. I have four of yours and five other utes.
PendragonY profile picture
Utes are a good solid base set of holdings. As long as they are in areas that are growing and you paid a good price, I don't think you can go wrong.
kos47 profile picture
I have: AES, D, DUK, PPL and SO. Too many in your opinion?
PendragonY profile picture
No, I have more. I am long D, DUK, SO, PPL, WEC and CNP. AES looks fine to me as well.
PPL has passed 6% yield. What do you guys think about them? I've been buying along the way down, but I'm willing to add more as it drops, but I don't want to try catching a falling knife or buy a value trap.
PendragonY profile picture
I like them. Was going to add them next but then SO came out with a really good earnings report and pushed to the head of the line. Likely PPL is up next after SO.
I'm concerned about the $1,000,000,000 dilution anticipated by management. Is that baked into the sell-off or is there another 5%-10% drop due to that?
PendragonY profile picture
I am not worried about it. Its better it replaces debt that Duke was going to use.
Mr. PendragonY:

Thanks for your thoughts on DUK. Added some shares just last week.

Retired income/dividend-growth investor
PendragonY profile picture
Great minds think alike, I added shares then too.
Frank Sinatra profile picture

Thanks for another solid article. DUK is a favorite utility of mine for a couple of different reasons. One of them is Duke is my son's nickname [ long\cute story =) ]. Locking in a growing 4.7+% dividend is huge for us longs over the long haul. Buying the dip.
PendragonY profile picture
Did you name him after John Wayne? Cool name. And I think we agree this stock is a keeper.
Initiated starter positions in SO, PPL and D since December. DUK looks like it's next. My DDM model said 88; yours says 83 - tough grader! Biggest concern for the sector is 3 to 4 rate hikes over the next year; that will be a headwind for them all.
PendragonY profile picture
Its less of a headwind and more just competition for investment cash.
dbchambers profile picture
Any insight for the future expansion of Duke's natural gas services? Piedmont was a nice addition but they trail SO for this type of service.

PendragonY profile picture
I think management has plans as they do have a $2 billion this year and $350 million for several years afterwards equity raise. I think they will put some of that capital to use expanding natural gas service.
gatcat profile picture
Long DUK and SO. I think SO is a relatively better buy over DUK att
PendragonY profile picture
I own both as well. I like DUK a tad more, but SO is next up on my list as I add to my utility positions.
Daniel.Cluley profile picture
I bought more of both this week. I own more DUK though as I think it is less risky. Bought more Duke this week at $75 and more SO at $43. Not that big of a position in either at 50 shares for DUK and 65 for SO. I am just filling up some yield here as these and REITs take a beating though. I have gotten the worse end on SO so far as I started buying a bit early in the $48 range. . . I am still down about 7% overall, but I expect it to recover long term as the issues from the Kemper and Vogtle plants are written off the books. Great yields for regulated utilities that can act as a ballast to your portfolio income.
PendragonY profile picture
I have about 250 DUK and 240 SO. I should add about $1500 more of SO on Tuesday.
Great entry point for Duke!!
PendragonY profile picture
It certainly is a great price. Gets you more shares per investment dollar which helps grow you income more quickly.
billinsd profile picture
I renewed my direct purchase each and every month...re investing all divvies,,,
PendragonY profile picture
I am accumulating dividends from DUK and all my large positions. Its how I get the cash to buy shares in new companies as well as grow companies I have held longer. Reinvestment is a good option as well, but I generate enough dividends that the commissions aren't a big drag.
billinsd profile picture

I should have also said,DUK is the only stock my pop left me.
So its kinda like planting a tree,and watching it grow.
In my IRA all dividends are currently going into 1-3 year CD's
That may upset a few people,but I want to ride things out for a while.
PendragonY profile picture

For me, CDs don't work, but that doesn't mean they don't work for you. ANd I think its great that your Dad was able to leave you shares of such a good company.
I recently started investing and have not gotten into Duke yet. I can only buy 10 shares at the moment at most. Would you recommend buying them?
Bim Ska La Bim profile picture
I would - utilities lend themselves to building a position over a long period of time since the price behavior of the issue is fairly steady.

As the market digests (or fidgets) future rates, you may be able to build a good position going forward.
PendragonY profile picture
I would as well. DUK is a pretty solid and rapidly growing utility. Reinvest the dividends back into it as well.
Good article Pendragon! I've been vascillating between DUK and D for awhile now. I believe you have swayed me to lean more towards DUK as D's future is less certain presently.
PendragonY profile picture

I own more D than DUK at the present time and think D is the slightly better choice. I wouldn't say that DUK has the better future as even without the SCANA acquisition D is still a great company.
Don't you think the Scana acquisition raises the risk profile?
PendragonY profile picture
No I don't think so at all. They are getting the assets of SCANA at a reasonable price and lots of new customers. And the deal only goes through if the rates for the nuke plants are mostly kept.
Frontier Man profile picture
Long DUK also
PendragonY profile picture
Yeah, DUK has paid me some nice dividends.
Very informative article, extremely well written. I am long on Duke.
PendragonY profile picture
Thanks. Glad you liked the article. DUK has been good to me.
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