Why Duke Energy (DUK) is a Top Dividend Stock

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Duke Energy in Focus

Headquartered in Charlotte, Duke Energy (DUK) is a Utilities stock that has seen a price change of -4.67% so far this year. The electric utility is paying out a dividend of $0.89 per share at the moment, with a dividend yield of 4.44% compared to the Utility - Electric Power industry's yield of 3.33% and the S&P 500's yield of 1.79%.

In terms of dividend growth, the company's current annualized dividend of $3.56 is up 2% from last year. Duke Energy has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 3.29%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Duke Energy's current payout ratio is 74%. This means it paid out 74% of its trailing 12-month EPS as dividend.

DUK is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $4.72 per share, representing a year-over-year earnings growth rate of 3.28%.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide a quarterly payout.

For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that DUK is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).

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