Are you looking for a solid stock with predictable returns? Are you a conservative investor who is not looking for a lot of risk? Then Duke Energy (NYSE:DUK) is the perfect stock for you.
As a utility company, Duke Energy has everything going for it. They have made strategic moves that have paid off and as a result, they have become the largest utility in the United States. During this time, it seemed as though Wall Street shunned the stock, not realizing what the future held for this company.
But Wall Street has since noticed and the stock price is now close to $90 a share. But I think it can go much higher. Below, you will find out why Duke Energy is a perfect stock to own.
The Business Of Duke Energy
A few short years ago, Duke Energy was a utility company that relied heavily on coal for power. But in the last few years, the electric giant has shuttered coal and turned to natural gas and other renewable energy sources as the United States pushes utilities to begin using more and more cleaner energy.
The move has paid off.
Currently, about 90% of Duke’s business is in the regulated market. This means that prices are controlled by the government. On the one hand, this looks like a problem, seeing as how it will slow growth. But by dealing with a regulated market, Duke Energy and its shareholders can more easily predict future earnings. In other words, the more regulated the market, the more stable the company and the stock.
Of course, in order to survive as a business you need customers. Duke has continued to increase both commercial and residential customers annually and in both their electric and natural gas segments.
When Duke Energy recently reported earnings, they missed on earnings per share by $0.01 coming in at $1.01. Revenues also missed, this time by $640 million, coming in at $5.16 billion. However, this was an increase of 3% compared to the prior year.
Even with the miss in estimates, Duke Energy reaffirmed full year 2017 earnings.
The Future For Duke Energy
The future looks bright for Duke Energy. They are looking towards the future with a 3-pronged plan:
- Modernize the grid
- Grow natural gas infrastructure
- Continue push toward clean energy
With this plan in place, Duke expects to grow earnings between 4-6% annually through 2021. That doesn’t sound like much, but you also have to take into account the dividend the company pays. They recently increased the dividend by 4%, and this marks the 91st consecutive year of paying a dividend.
The current yield on Duke Energy stock is 4%. So when you add this to the projected earnings growth, you are looking at a stock that you can expect to return close to 10% annually for the next 5 years. Not bad for a company that deals with a regulated market.
The only downside to the stock is the small percent of earnings that come from its international business. With this segment, you run many risks, including political and currency risks.
However, seeing that less than 10% of the company’s earnings come from international business, any trouble faced here should be small and not affect earnings greatly.
Final Thoughts
At the end of the day, Duke Energy is a perfect stock for conservative investors. As a utility company, the stock won’t face many headwinds and the company should be able to continue to meet expectations.
In fact, this stock could be a great addition to the portfolio of most investors, as a 10% annual growth rate is not something that many stocks can boast about.
This author has no positions in any stock mentioned and does not plan to open any positions in any stocks mentioned for at least 72 hours after publication of this article.