Duke Energy Corporation (NYSE:DUK) will increase its dividend on the 16th of September to $1.05, which is 2.0% higher than last year's payment from the same period of $1.02. The payment will take the dividend yield to 3.6%, which is in line with the average for the industry.
Check out our latest analysis for Duke Energy
Duke Energy's Payment Has Solid Earnings Coverage
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Duke Energy's dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. We think that this practice can make the dividend quite risky in the future.
The next year is set to see EPS grow by 23.4%. Assuming the dividend continues along recent trends, we think the payout ratio could be 61% by next year, which is in a pretty sustainable range.
Duke Energy Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2014, the dividend has gone from $3.12 total annually to $4.10. This means that it has been growing its distributions at 2.8% per annum over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.
Duke Energy Could Grow Its Dividend
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Duke Energy has seen EPS rising for the last five years, at 6.4% per annum. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.
In Summary
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for Duke Energy (of which 1 makes us a bit uncomfortable!) you should know about. 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.
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About NYSE:DUK
Proven track record average dividend payer.
