Last update on 2024-06-27

Duke Energy (DUK) - Dividend Analysis (Final Score: 3/8)

Duke Energy (DUK) dividend analysis using an 8-criteria scoring system reveals a moderate score of 3/8. Comprehensive performance and stability insights.

Short Analysis - Dividend Score: 3

We're running Duke Energy (DUK) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The analysis of Duke Energy's (DUK) dividend policy shows a mixed performance based on an 8-criteria system. Duke's current dividend yield of 4.1838% is higher than the industry average of 3.12%, which is good for income-focused investors. However, the average annual dividend growth rate just misses the 5% mark, at around 4.85%. The company's average payout ratio over the last 20 years is high at 86.24%, often exceeding 100%, indicating potential unsustainability. Dividends are generally well-covered by earnings in recent years, but coverage by cash flow reveals significant fluctuations, indicating inconsistent sustainability. Duke Energy has been stable in paying dividends and has done so for over 25 years consistently. However, the company has not reliably repurchased shares, with buybacks only happening in 2015 and 2016.

Insights for Value Investors Seeking Stable Income

If you're an income-focused investor looking for stable and relatively high dividends, Duke Energy could be a viable option due to its long history of consistent dividend payments and above-average yield. However, be cautious about the high payout ratios and inconsistent cash flow coverage, which may pose risks to long-term sustainability. Duke Energy's lack of reliable stock repurchase programs could also be seen as a downside. It's worth deeper research into the company's future prospects and financial health before making any investment decisions.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield represents the ratio of a company's annual dividend to its share price. It shows the income generated from an investment in equity.

Duke Energy's current dividend yield of 4.1838% is substantially higher than the industry average of 3.12%. Historically, Duke Energy has consistently maintained a higher dividend yield compared to the industry average. Over the last 20 years, its dividend yield peaked in 2005 at 6.521% and has experienced fluctuations, often above 4%, indicating a strong propensity to return substantial value to shareholders. Meanwhile, the industry average has generally remained below Duke Energy's levels, with its peak being 4.7% in 2018. The high dividend yield for Duke Energy can be seen as a positive indicator for income-focused investors. However, it's essential to also consider the sustainability and growth potential of these dividends. Given that Duke Energy has a relatively stable and high dividend yield, largely surpassing industry averages, the trend is favorable for dividend investors.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate measures the year-over-year growth in dividends paid to shareholders. A higher growth rate can indicate financial health, commitment to returning value to shareholders, and strong future prospects.

Analyzing the given dividend-per-share-ratio data, the average dividend growth rate over the last 20 years for Duke Energy stands at approximately 4.85%. Although the growth is quite close to 5%, it does fall short of the 5% benchmark, which indicates a moderate and stable but not aggressively high growth trend. Some years like 2005 saw significant growth (62.73%), and other years like 2006 experienced negative growth (-29.61%), showing variability. From a conservative dividend growth perspective, this trend could be viewed as stable but modestly below optimal growth expectations.

Average annual Payout Ratio lower than 65% in the last 20 years?

The payout ratio indicates the percentage of earnings a company pays to its shareholders in the form of dividends. A payout ratio below 65% is generally considered sustainable, signaling that the company retains enough earnings for growth and stability.

Duke Energy (DUK) has had an average payout ratio of 86.24% over the last 20 years, which is significantly higher than the target threshold of 65%. With payout ratios exceeding 100% in several years (2009, 2014, 2020, and 2022), indicating that the company paid out more in dividends than its net earnings, this trend can be deemed unsustainable and risky. For instance, in 2020, the payout ratio even soared to 204.45%, far exceeding the ideal range, indicating potential financial stress. Therefore, this trend should be viewed unfavorably for those prioritizing sustainable dividend growth.

Dividends Well Covered by Earnings?

Dividends being well covered by earnings indicate the company's ability to generate sufficient profit to sustain dividend payments without compromising business growth or stability.

From 2003 to 2023, Duke Energy (DUK) has displayed fluctuations in its dividends covered by earnings, with values ranging from -0.44 to 2.04. Notably, negative or low coverage ratios (e.g., -0.44 in 2003) to substantial highs (e.g., over 1.0 in several years, such as 2015, 2020, and 2023) highlight varied company performance. The consistent coverage in recent years, especially exceeding 1.0 in multiple instances, signifies a generally positive trend in ensuring dividends are sustainable and well-supported by earnings. This reflects good financial health in recent years.

Dividends Well Covered by Cash Flow?

It is essential to evaluate whether a firm's dividends are well-covered by its cash flow to determine its ability to maintain and grow dividend payments without compromising financial stability. Strong coverage indicates sustainability.

Duke Energy's free cash flow relative to its dividend payouts evidenced by the fluctuating 'Dividend covered by Cashflow' metric, reflects notable volatility. For instance, while the ratios in 2005 and 2007 were impressively high at 2.23 and 13.12 respectively, negative ratios in years such as 2008 and 2016, at -1.08 and -2.11, respectively, illustrate periods when free cash flow was inadequate to cover dividend payouts. Sustained periods of negative coverage, seen frequently over the past two decades, suggest potential challenges in sustaining dividend payments solely from operational cash flows. This inconsistency warns against over-reliance on free cash flow for dividends, marking a generally concerning trend.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over the past 20 years reveal a company's commitment to returning value to its shareholders. Consistent dividend payments act as a signal of financial stability and reliability, important for income-seeking investors.

Duke Energy (DUK)'s dividend history over the past two decades demonstrates remarkable stability. The dividend per share has not decreased by more than 20% in any year, showcasing the company's commitment to consistent shareholder returns. While there were fluctuations, none amounted to the 20% threshold; for example, Duke's dividends per share saw a significant post-acquisition adjustment where it jumped from $1.9217 in 2005 to $3.1205 and corrected to $2.196 in 2006. This trend highlighted Duke Energy’s strength and adaptability ensuring consistent returns. Given this trajectory, this stability is a positive indicator for current and prospective investors.

Dividends Paid for Over 25 Years?

Examining whether a company has paid dividends consistently for over 25 years helps gauge its stability and commitment to returning value to shareholders.

Duke Energy (DUK) has paid dividends consistently for over the past 25 years. From 1998 to 2023, Duke Energy’s dividend per share has not only been consistently paid but also shows a general upward trend, growing from $1.9176 in 1998 to $4.06 in 2023. This consistency and growth in dividend payment is a positive trend, as it demonstrates Duke Energy’s commitment to returning value to shareholders and its financial stability. The regular increase in dividends can be seen as a sign of robust cash flow and confidence in sustained earnings, making it attractive to income-focused investors.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases refer to a company's consistent buyback of its own shares over a defined period. It's important because consistent repurchases can signal management’s confidence in the company’s future performance, help in providing support to the stock price, and enhance shareholder value by reducing the number of outstanding shares.

Examining Duke Energy's stock repurchase data over the past 20 years, it has been observed that the company reliably repurchased shares only in the years 2015 and 2016. During most years, the number of shares outstanding has generally increased from 300,999,699 in 2003 to 771,000,000 in 2023. The average repurchase rate over 20 years stands at a minimal 5.1388% per year. This trend indicates that Duke Energy has not prioritized stock repurchases, rather it has consistently issued more shares. This could be viewed negatively from the perspective of share buybacks, but it's worth noting that share issuances might have been used for financing important projects, acquisitions, or maintaining liquidity, which could benefit long-term shareholders.