3 Things to Watch With Duke Energy
Jun 29th 2012 10:57AM
Updated Jun 29th 2012 10:58AM
Duke Energy (NYS: DUK) is an electrical utility that supplies power to approximately 4 million residential, general service, and industrial customers within the United States. Duke primarily derives its electrical-generating capabilities from natural gas, hydroelectric, nuclear and coal. Duke also has an international segment which markets electrical power, natural gas, and natural gas liquids.
Today, let's look at three things investors should be watching regarding Duke Energy, as they will provide us better insight into the company.
1. Duke's pending merger with Progress Energy
It's taken a year-and-a-half in the making, but it finally appears that Duke Energy's merger with Progress Energy (NYS: PGN) is going to come to fruition. Both companies cleared their final regulatory hurdle with the Federal Energy Regulatory Commission this week as long as they meet certain conditions designed to make sure they don't exert undue control over the power markets in North and South Carolina. These conditions include power sales and the building of new transmission lines to ensure that competing power can flow into the Carolina's.
The deal is expected immediately to be accretive to the combined company's earnings and costs should fall, ultimately translating into stable, or perhaps even lower, costs for consumers. The combined entity will have 7.1 million customers and become the nation's largest electric utility. Even with FERC's demands, don't underestimate the price control that the combined entity will exert either. Although Duke has nuclear plants of its own, its pricing power and diversity of energy fuel sources will allow it to grow faster than Exelon (NYS: EXC) which is heavily reliant on the currently pricier nuclear energy for much of its growth.
2. Duke's use of renewable energy
Between the rising cost of commodities and increased awareness concerning the environmental, green initiatives to improve the environment and lower corporate costs are no longer an option for utilities -- they are a must. Duke has been a pioneer in utilizing renewable energy sources to fuel its growth for years and further efforts will be needed to impress hardline environmentalists.
Duke Energy has invested $2.5 billion over the past five years to build-out its wind farms which are capable of generating in excess of 1,000 MW of production. Another key aspect to Duke's clean-energy initiatives are its reliance on hydroelectric power as it slowly commits to closing some of its older coal-powered plants. While not as large as California's PG&E (NYS: PCG) which I recently highlighted as America's leading hydroelectric power producer, Duke nonetheless is minimizing its carbon emissions and working with a somewhat abundant source. Clearly wind and hydroelectric power have their limitations (a lack of wind and a lack of waterways), but Duke's continued move toward cleaner, renewable energies should ultimately boost its bottom line and get it back in the good graces of environmentalists.
3. That delectable dividend
Let's face it, there're really only three reasons to buy a utility company: Either you're investing in necessity products, you're vehemently against volatility, or you're craving a safe, high-yielding, dividend (or perhaps you're chasing all three?). That's why it's more important than ever for Duke to focus on rewarding its shareholders after merger discussions with Progress have dragged on seemingly forever!
Thankfully this is another area where Duke has generally excelled. Outside of its spinoff of Spectra Energy (NYS: SE) in 2007 which caused payouts to fall (though in nominal terms only since shareholders were apportioned shares of Spectra Energy with the spinoff), Duke's dividend has tended to move higher over the long-term. Earlier this week it announced a $0.005 increase in its quarterly payout to $0.255 each quarter, marking the 86th consecutive year it will have paid shareholders a dividend. Although Duke's dividend yield of 4.4% might seem like the middle of the road for most electric utilities, its steady cash flow, history of dividend increases, and significant pricing power should put most investors at ease.
Now that you know what to watch for, it should be easier to analyze Duke Energy's successes and pitfalls in the future and hopefully give you a competitive investing edge.
If you're still craving even more info on Duke Energy, I would recommend adding the stock to your free and personalized watchlist so you can keep up on all of the latest news with the company.
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The article 3 Things to Watch With Duke Energy originally appeared on Fool.com.Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on Motley Fool CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. Motley Fool newsletter services have recommended buying shares of Spectra Energy and Exelon. Motley Fool newsletter services have recommended creating a write covered straddle position in Exelon. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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