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A Healthy and Growing Dividend for Duke Energy

We think the dividend yield for this undervalued, well-run, narrow-moat utility will grow 4% annually over the next five years.


Andrew Bischof: One utility we really like for its healthy and growing dividend is Duke Energy. Duke has a 4.6% dividend yield, and we think it will grow 4% annually over the next five years. Utilities are down nearly 14% over the past three months and have underperformed the S&P by 19%. One of the key reasons for utility underperformance is that the 10-year Treasury, to which dividend yields are compared as an income proxy, have risen to near 3% during this time, the highest it's been since January 2014. Duke is one of our most attractive names, trading at a 14% discount to our fair value estimate, and its 4.6% yield 100 basis points greater than the industry average. So we think you get both a solid dividend yield and potential for capital appreciation.

The source of Duke's dividend are high-quality regulated utilities with a stable cash flow generating profile. The company's narrow-moat subsidiaries operate in constructive, regulatory environments where we have high confidence that regulators will provide for an appropriate return on investments. Duke operates in Florida, which is experiencing above average customer growth as more and more residents move to the sunshine state. Florida also allows a 10.5% return on equity, well above the national average. Duke also has a large presence in North and South Carolina, which has provided for supportive regulatory treatment and attractive growth opportunities.

Andrew Bischof does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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