A detailed quantitative analysis by Duke Energy (DUK) is linked here. Below are some highlights from the analysis linked above:

Company description: Duke Energy Corp. merged with Progress Energy in mid-2012 and is the largest power holding company in the US with more than 7 million customers in six states.

Fair value: When calculating the fair value, I take into account the NPV MMA Differential Fair Value together with these four calculations of the fair value, a detailed description can be found on page 2 of the linked PDF:

1. Avg. High yield price
2. 20-year DCF award
3. Avg. P / E price
4. Graham number

DUK trades at a premium to all four of the above ratings. With the NPV-MMA differential also factored in, the stock trades at a premium of 87.8% to its calculated fair value of \$ 53.05. DUK didn’t deserve any stars in this section.

Analytical data on dividends: There are three possible stars and three key metrics in this section, a detailed description can be found on page 2 of the linked PDF:

1. Free cash flow payout
2. Debt to total capital
3. Key metrics
4. Dividend Growth Rate
5th years Div. growth
6. Rolling 4-year div. > 15%

DUK has earned a star for 3.) above in this section. DUK received a star for an acceptable score in at least two of the four key metrics measured. The company has paid a cash dividend to shareholders every year since 1926 and has increased its dividend payments for 17 consecutive years.

Dividend Income vs. MMA: Why take the equity risk and invest in a dividend stock when you could get a better return with a much lower risk money market account (MMA) or a government bond? This section compares the earning power of this stock to a High yield MMA. In this section two points are considered, a detailed description can be found on page 2 of the linked PDF:

1. NPV MMA Diff.
2. Years to> MMA

The NPV MMA Diff. that \$ 423 is below the \$ 1,800 target I’m looking for in a stock that has been raising dividends for as long as DUK. The stock’s current yield of 3.88% surpasses the estimated 20-year average MMA rate of 2.74%.

Peers: The company’s peer group includes: The Southern company (SO) with a yield of 4.3%, American Electric Power Co., Inc. (AEP) with a yield of 3.6% and CenterPoint Energy, Inc. (CNP) with a yield of 2.6%.

Conclusion: DUK did not receive any stars in the “Fair Value” area, one star in the “Dividend Analysis Data” area and no stars in the “Dividend Income vs. MMA” area, so one star in total. DUK is thus quantitatively referred to as a. classified 1 star very weak Warehouse.

Using my D4L-PreScreen.xls Model, I found that the stock price would have to drop to \$ 56.48 before DUK’s NPV MMA differential rose to the minimum of \$ 1,800 that I’m looking for on a stock with 17 years of consecutive dividend increases. At that price, the stock would return 6.8%.

Resetting the D4L-PreScreen.xls The model and solution for the dividend growth rate required to achieve the target NPV MMA differential of \$ 1,800, the calculated rate is 6.8%. This dividend growth rate is higher than the 1.0% used in this analysis and therefore does not offer a margin of safety. DUK has one Risk rating of 2.00, which rates it as a medium risk stock.

DUK’s regulated utilities operate primarily in North Carolina and South Carolina and provide a stable source of income. The company’s international business ensures steady cash flows and income diversity. Currently, DUK’s debt versus total capital of 57% (flat rate) is above my maximum of 45%, while the free cash flow payout of 2968% (down from -95%) is unsustainable in the long run. The stock is currently trading at a premium of 87.8% on my calculated fair value. Therefore, I will not increase my position until dividend fundamentals improve.

Disclaimer: The material presented here is for informational purposes only. The above quantitative stock analysis, including the star rating, is mechanically calculated and based on historical information. The analysis assumes that the share will develop in the future as it has in the past. This is generally never true. Before buying or selling stocks you you should do your own research and come to your own conclusions. Please see my disclaimer for more information.

Full disclosure: At the time of this writing, I was long in DUK (0.5% of my dividend growth stock portfolio).

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Tags: DUK, SO, AEP, CNP,