On Mar 17, 2016, shares of Duke Energy Corporation (DUK – Analyst Report) soared to a new 52-week high of $80.22. The stock pulled back a bit to end the trading session at $79.99. This utility giant with a market cap of around $55.03 billion has seen its shares rise roughly 12.05% so far this year, outperforming the 0.16% decline of the S&P 500 over the same period.
What’s Driving Duke Energy Up?
The soft approach of the Federal Reserve to rate hikes may give regulated utilities a reason to cheer. The Fed kept the short-term interest rate steady in the 0.25–0.50% band in its meeting and indicated that only two rate hikes are likely for the year. At the end of the Federal Open Market Committee’s meeting, the central bank announced that it now expects federal funds rate to rise to 0.875% by the end of the year compared with its earlier expectation of 1.375% that took into account four hikes.
As a result, utilities are expected to benefit from a low-rate scenario in the near term. The sector is a safe bet providing investors with steady returns in an otherwise volatile market. Duke Energy was not the only one hitting a 52-week high last session. Other utilities like Southern Company (SO – Analyst Report), PG&E Corporation (PCG – Analyst Report) and American Electric Power Co., Inc. (AEP – Analyst Report) also rallied to hit their 52-week highs on the Fed’s cautious stance.
The largest power provider in the U.S. by market capitalization, Duke Energy is a premier utility service provider offering efficient power and energy services across various states in the U.S. and several other international locations.
We appreciate the company’s efforts to expand its scale of operations and modernize technologies. Duke Energy invests heavily in infrastructure and expansion projects. For Duke Energy Carolinas and Florida, it expects to spend about $11.35 billion and $6.85 billion, respectively, in the 2016–2020 period.
The company has undertaken several projects and plans to invest about $25 billion to $30 billion over the 2016–2020 time frame. The company expects to make capital investment of $9.225 billion in 2016, $8.8 billion in 2017 and $8.3 billion in 2018. These investments are expected to support the company’s targeted earnings growth rate of 4% to 6% through 2020.
Duke Energy is systematically enhancing its regulated business mix. In Oct. 2015, the company announced plans to acquire Piedmont Natural Gas that will add a well-established natural gas business to the Duke portfolio. Strategically, this acquisition will lay the foundation for a broader gas infrastructure platform within Duke.
Moreover, this acquisition will boost its total regulated business mix to more than 90%, thereby supporting its earnings and dividend growth objectives. Duke Energy has plans to invest nearly $8 billion to expand its regulated electric grid infrastructure, including improvements in technology over the 2016–2020 time frame.
Duke Energy has a long dividend payment history distributing quarterly cash dividends for 88 consecutive years. Making it possible is its strong liquidity position with $3.99 billion available as of Dec 31, 2015.The company continues to target annual dividend growth consistent with its long-term 4% to 6% earnings growth rate. Through 2020, the company expects to maintain its long-term dividend payout ratio of 70% to 75% of adjusted earnings per share.
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