Dividend Analysis: Duke Energy
We analyze 25+ years of dividend data and 10+ years of fundamental data to understand the safety and growth prospects of a dividend. Duke Energy’s long-term dividend and fundamental data charts can all be seen by clicking here.
Dividend Safety Score
Our Safety Score answers the question, “Is the current dividend payment safe?” We look at factors such as current and historical EPS and FCF payout ratios, debt levels, free cash flow generation, industry cyclicality, ROIC trends, and more. Scores of 50 are average, 75 or higher is very good, and 25 or lower is considered weak.
Duke Energy’s Dividend Safety Score of 80 indicates that the company has a very safe dividend payment. Duke’s dividend has consumed 81% of its diluted earnings per share over the last 12 months. A payout ratio this high is usually cause for some concern because it provides less wiggle room in the event of an unexpected drop in profit.
However, regulated utility companies are able to safely maintain higher payout ratios because their earnings are (generally) extremely steady, making utilities one of the best stock sectors for dividend income.
Using management’s “adjusted” earnings, Duke Energy’s payout ratio is closer to the company’s target range of 65-70%. As seen below, Duke’s payout ratio has been above 60% each of its last 10 fiscal years.
Source: Simply Safe Dividends
Not surprisingly, utility companies hold up relatively well during economic recessions. As seen below, Duke Energy’s revenue edged down by just 4% in 2009. While customers use somewhat less electricity during periods of weak growth, they still need it to live. DUK’s stock also fared well in 2008 and outperformed the S&P 500 by 15%.
Source: Simply Safe Dividends
As we mentioned earlier, regulated utility companies earn very stable earnings. As a state-regulated monopoly company selling non-discretionary services, it’s no surprise to see Duke Energy’s consistent results below.
Source: Simply Safe Dividends
Duke Energy’s earnings are steady, but regulators control the rates the company can charge customers to ensure pricing is fair. As a result, the returns Duke can earn on its capital projects are capped, and the company’s return on invested capital has remained in the low- to mid-single digits over the last decade.
Source: Simply Safe Dividends
