Duke Energy (NYSE:DUK) Is Increasing Its Dividend To $1

The board of Duke Energy Corporation (NYSE:DUK) has announced that it will be paying its dividend of $1 on the 16th of September, an increased payment from last year's comparable dividend. This will take the annual payment to 3.7% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Duke Energy

Duke Energy's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last dividend made up quite a large portion of free cash flows, and this was made worse by the lack of free cash flows. We think that this practice can make the dividend quite risky in the future.

The next year is set to see EPS grow by 31.7%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 65% which would be quite comfortable going to take the dividend forward.

Duke Energy Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was $3.00 in 2012, and the most recent fiscal year payment was $4.02. This works out to be a compound annual growth rate (CAGR) of approximately 3.0% a year over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

Dividend Growth May Be Hard To Achieve

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Earnings have grown at around 4.0% a year for the past five years, which isn't massive but still better than seeing them shrink. Slow growth and a high payout ratio could mean that Duke Energy has maxed out the amount that it has been able to pay to shareholders. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company's dividend prospects.

Duke Energy's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Duke Energy will make a great income stock. Although they have been consistent in the past, we think the payments are a little high to be sustained. We don't think Duke Energy is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for Duke Energy you should be aware of, and 1 of them doesn't sit too well with us. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.