Duke Energy Corp. (DUK - Analyst Report), a Charlotte, NC-based diversified energy company, announced a 1.5 cents or 2% year-over-year hike in its annual dividend payout to $3.12 per share.
The quarterly cash dividend of 78 cents is payable on Sep 16 to shareholders of record as of Aug 16. This is the 87th consecutive annual dividend payment and also marks the 6th successive year in which the company has lifted the dividend.
Based on the closing price of $66.12 on Jun 25, 2013, the proposed dividend affirms a healthy yield of 4.7%. A steady dividend payout is part of the long-term strategy of Duke Energy to provide attractive risk-adjusted returns to its stockholders compared with its peers. In addition, decent dividend increases at periodic intervals from the company have been one of its strengths.
Duke Energy’s U.S. electricity and gas operations (spread over the Carolinas, Florida, Indiana, Kentucky and Ohio) generate a relatively stable and growing earnings stream. The company remains focused on core utility operations to build its rate base through capital expenditure investments.
Of late, the company has been investing in new plants, retiring older plants as well as working on modernization of plants to reduce emissions across its service area. Since 2007, the company has invested approximately $6 billion in new plants and has retired up to 6,800 megawatt (MW) of older coal capacity. All the more, it has invested another $7.5 billion for plant upgrades.
Again, the company is also making investments to acquire assets that promise profitability. Its acquisition of fellow North Carolina based utility, Progress Energy Inc. spread the new entity’s stable U.S. electricity and gas operations over 7.1 million electric customers in Carolinas, Florida, Indiana, Kentucky and Ohio.
Post-merger, Duke Energy dethroned Chicago-based Exelon Corporation (EXC - Analyst Report) to become the largest U.S. utility. It also helped Duke Energy to build more power plants to meet future greenhouse-gas emissions limits. We expect the merger to be a strategic fit and keep the company’s long-term goal of 4–6% earnings growth in good stead.
Looking at the earnings surprise history, the company has beaten the Zacks Consensus Estimate in the past three out of four quarters. The average positive earnings surprise in the trailing four quarters comes to 3.6%.
The company currently has a Zacks Rank #3 (Hold). Other companies that are well placed in the sector are Companhia Paranaense de Energia and CPFL Energia S.A. (CPL - Snapshot Report), both with a Zacks Rank #1 (Strong Buy).