Tuesday, August 10, 2010

A Utility Company With A 5% Yield

Duke Energy (DUK) is one of the largest utility companies in the world. Duke provides energy to 4 million customers located primarily in the Midwestern region of the country. Duke operates nuclear, hydro-electric, oil, gas, and coal power plants. The North Carolina based company earns it revenue off of consumer and business demand for its energy products.

Duke just reported a $220 million dollar loss in its earnings announcement last week. The company lost 17 cents a share because the company took a $660 million dollar charge for writing down the value of some of its power plants. Without this charge, the company would have had a $440 million dollar gain which amounts to 34 cents per share. Duke beat the top line estimates. Revenue came in at $3.29 billion which was higher than analyst expectations of $3.1 billion.

Duke raised its EPS projection for the year with the company forecasting earnings of $1.35 per share. Earnings are expected to grow +4.4% over the next 5 years. This is favorable compared to the -8.2% decline over the past 5 years. Duke has over $57 billion dollars in assets and $1 billion in cash on its balance sheet. The company does have a large debt burden of $17 billion dollars but it is not uncommon for utility companies to have large debt servicing obligations.

The stock currently trades at 13 times this year’s earnings. This is about average for a utility company. Shares trade at a similar valuation to Progress Energy and Southern Company. All of these companies are currently yielding over 5%. At $17 a share, the stock sells at just 1.08 times book value.

Duke Energy recently increased its dividend raising the payout 2%. Duke has paid investors a dividend for 84 consecutive years.The company will now pay investors 98 cents per year. The stock is currently yielding 5.6%. The dividend payout ratio is 72.5% which is higher than many industry competitors. The company has historically paid out a high percentage of earnings via distributions over the last 5 years.

Duke’s biggest challenge is that the company expects energy demand to be down over the next few years due to the challenging economy, tougher environmental regulations, and lower demand for energy products. The company believes that it could take 5 years before energy demand returns to the global economy. Duke is a safe company to invest in that will provide income seeking investors with stable dividend payouts for years to come.


This article was written by [Buy Like Buffett]. If you enjoyed this article, please consider subscribing to my feed at [RSS].

2 comments:

  1. while the biggest challenge is the down economy, there is no where else to get your electricity. Even with the recession, I am still running my A/C full blast and my electric bill shows it. It is nice to be able to own an electric utility that will pay for my bill with their dividends :)

    ReplyDelete
  2. Absolutely!! Want to lower your energy bill? Buy the company that sells you the juice!!

    ReplyDelete

Recent Posts From DIV-Net Members