Tag: Duke Energy Corporation (DUK)

Energy Demand Climbs in Cold Months: Why Duke Energy Could Be a Hot Pick for Utility Investors

Posted on by The INO.com Team

As temperatures dip in the winter, energy demand predictably rises. Consumers and businesses turn up heating systems, putting an extra load on electricity and natural gas utilities. This seasonal surge often benefits energy companies, with utilities seeing increased revenue and stability as they serve higher demand. Among top choices, Duke Energy Corporation (DUK) stands out due to its extensive service footprint and strong fundamentals, particularly for investors seeking stability and dividends in the winter season.

The Charlotte-based energy giant Duke Energy supplies electricity and natural gas across the Midwest and Southeast, servicing 8.4 million electric and 1.7 million gas customers. With a wide reach in states experiencing seasonal temperature drops, Duke’s geographical advantage and regulated market structure offer a solid case for consideration in a dividend-focused portfolio.

Seasonal Utility Growth: A Winter Energy Surge

Winter marks a peak season for energy companies as heating demand drives electricity and gas consumption. Utilities, including Duke Energy, typically benefit as regulated energy providers due to rate structures that help recover costs even as demand varies. Additionally, these companies invest heavily in grid reliability, allowing them to maintain service despite increased seasonal stress on infrastructure. Duke, for instance, has a multi-billion-dollar, five-year investment plan aimed at enhancing its grid and expanding renewable sources.

In its latest earnings report, Duke Energy noted robust growth trends driven by population shifts to the Southeast, a region Duke extensively serves. Even as Duke manages rising costs from storm recovery and infrastructure upgrades, the company is well-supported by rate recovery mechanisms, including multi-year rate plans in North Carolina, Florida, and Indiana. For investors, this seasonal stability combined with ongoing growth initiatives creates a reliable income opportunity.

Duke Energy’s Advantage: Broad Geographic Footprint

Duke Energy’s footprint spans areas where winter demand surges significantly, from North Carolina to Indiana. This geographic advantage not only strengthens Duke’s customer base but also ensures revenue stability across multiple jurisdictions, which are generally supportive of utility rate adjustments. In Florida, for example, Duke secured approval for a multi-year rate plan to help manage rising service costs, adding financial resilience to its operations.

Duke’s unique positioning in areas with high population growth is another asset. North Carolina and Florida have some of the highest migration rates in the U.S., contributing to an expanding customer base, especially in the residential sector. In Q3 2024, Duke added over 100,000 residential customers, driven partly by ongoing migration trends to the Southeast. This steady expansion bolsters Duke’s overall stability and growth, providing investors with a long-term hold prospect as well as steady returns in high-demand seasons.

Financial Performance: Revenue Trends and Dividend Strength

For the third quarter of 2024, Duke reported adjusted earnings per share (EPS) of $1.62, which declined from $1.94 in the prior-year quarter and missed Wall Street estimates by 5.7%. However, the company reaffirmed its adjusted EPS guidance range of $5.85 to $6.10 for the year, though it noted that increased storm-related costs would likely push results toward the lower half of this range. Still, Duke’s forecasted 5% to 7% annual EPS growth through 2028 demonstrates its commitment to value creation.

One of Duke’s main appeals to investors is its dividend, which currently yields around 3.7%, above many of its industry peers. With a target payout ratio between 60% and 70% of adjusted earnings, Duke has consistently prioritized dividend stability, even while navigating higher expenses and infrastructure demands. For dividend-focused investors, Duke’s attractive yield and established payout history make it a compelling option.

Risk Factors: Regulatory Hurdles and Weather Variability

Like all utilities, Duke faces regulatory risks that could affect revenue and project timelines. Regulatory bodies in states like North Carolina and South Carolina have historically supported rate increases to help Duke offset costs. However, future rate adjustments are subject to political and regulatory scrutiny, especially as environmental regulations evolve. Duke’s clean energy initiatives, such as grid modernization and renewable projects, align with long-term regulatory expectations, but any delays or adverse rulings could impact the company’s cost recovery and growth projections.

Weather remains another variable, as demonstrated in 2024’s record storm season, which included hurricanes Helene, Debby, and Milton, all of which heavily impacted Duke’s Southeast service areas. Duke incurred significant storm restoration costs, estimated between $2.4 billion and $2.9 billion, but regulatory mechanisms in place are expected to help recover these expenses. Despite weather unpredictability, Duke’s systematic response and robust infrastructure investments support its ability to handle such challenges.

Investment Appeal: A Stable Dividend Stock with Winter Potential

For investors seeking stability and dividends, Duke Energy presents an appealing option, especially as winter demand drives up energy consumption. The company’s solid dividend yield, reinforced by its regulatory mechanisms and widespread customer base, makes it a dependable choice for income-focused portfolios. Furthermore, Duke’s clear growth trajectory—anchored by regulatory support and infrastructure improvements—enhances its resilience amid industry challenges.

As winter approaches, investors may consider Duke Energy a prudent addition to capitalize on seasonal utility demand. With a steady dividend and favorable positioning in high-growth regions, Duke offers a compelling mix of income and long-term growth potential.

Build a Secure Portfolio with these 5 Stocks Amid 15-Year High Treasury Yield

Posted on by The INO.com Team

Last month, Federal Reserve Chair Jerome Powell announced the unanimous decision by the FOMC to raise key interest rates by another 25 bps. With this move, the central bank has raised the benchmark borrowing cost to 5.25%-5.50.

With a 2.6% rise in inflation, down from a 4.1% rise in Q1 and well below the estimate for a gain of 3.2%, and an annualized increase of 2.4% in the gross domestic product in the second quarter, topping the 2% estimate, the belief that Jerome Powell and his team at the Federal Reserve may be on the cusp of achieving the elusive “soft landing” was gaining strength in the market.

However, ECB raised interest rates by a quarter percentage point shortly after, citing persistent inflation. Moreover, the recently released minutes of the Fed’s July 25-26 policy meeting reveal broad expectations of ‘upside risks’ to inflation, leading to a fresh realization that rates could stay higher for longer, contrary to some initial forecasts and hopes of cuts starting in 2024.

In such a scenario, despite increased optimism, businesses are expected to remain weighed down by high borrowing costs, and economic activity is expected to remain stifled due to relatively scarce credit.

Moreover, with every increase in benchmark interest rates, a selloff of long-duration fixed-income instruments, such as the 10-year treasury notes, gets triggered, which causes a slump in their market value and a consequent increase in their yields. This also increases the benchmark 30-year mortgage rates, thereby depressing demand and deepening the crisis in which real estate has lately been finding itself.

Last week, as the 10-year Treasury yield rose to 4.307% from 4.258%, settling at its highest closing level since 2007, and the 30-year Treasury yield hit a 12-year high, rising to 4.411%, there is still a significant probability that in order to overcompensate for the infamous “transitory” call that caused the Fed to arrive (really) late in its fight against demand-driven inflation, the central bank may be sowing the seeds of economic stagflation.

An increase in borrowing costs would not just raise the cost of servicing the $32.7 trillion national debt; significant markdowns and prices of legacy bonds could crush the loan portfolios of banks that could share the same fate as the Silicon Valley Bank and the First Republic Bank. In this context, S&P's move to downgrade multiple U.S. banks citing ‘tough’ operating conditions hardly comes as a surprise.

Speaking of banks, the Bank of Japan’s policy tweak loosened its yield curve control, sparking widespread shock in the markets. To compound the miseries further, after placing the country on negative watch amid the debt-ceiling standoff at Capitol Hill back in May, Fitch Ratings recently downgraded U.S. long-term rating to AA+ from AAA, citing the erosion of confidence in fiscal management.

With HSBC Asset Management’s warning that a U.S. recession is coming this year, with Europe to follow in 2024, gaining credibility with each passing day, being diligent investors confident enough to increase their stakes in fundamentally strong businesses could be a time-tested method to navigate potential turbulence ahead.

Here are a few stocks which could be worthy of consideration:

Johnson & Johnson (JNJ)

JNJ has been around for 135 years and is a worldwide researcher, developer, manufacturer, and seller of various healthcare products. The company operates through three segments: Consumer Health; Pharmaceuticals; and MedTech.

Over the past three years, which have been turbulent, to say the least, JNJ’s revenue has grown at a 6.7% CAGR. During the same period, the company also registered EBITDA and total asset growth of 8.2% and 6.6%, respectively.

Despite flagging sales of Covid 19 Vaccines, JNJ’s reported sales during the fiscal year 2023 second quarter increased by 6.3% year-over-year to $25.53 billion. During the same period, the company’s adjusted net earnings increased by 6.5% and 8.1% year-over-year to $7.36 billion and $2.80 per share, respectively.

In addition to its robust financials, the relative immunity of its demand and margins to potential economic downturns make it an attractive investment option for solid risk-adjusted returns.

Merck & Company, Inc. (MRK)

MRK is a global healthcare company offering prescription medicines, vaccines, biological therapies, and animal health products. The company operates through Pharmaceuticals and Animal Health segments.

Over the past three years, MRK’s revenue has grown at a 9.9% CAGR, while its total assets have grown at a 4.9% CAGR.

On August 3, MRK announced that the U.S. Food and Drug Administration (FDA) approved an expanded indication for ERVEBO, which is now indicated for the prevention of disease caused by Zaire ebolavirus in individuals 12 months of age and older. The vaccine was previously approved for use in individuals of age 18 years and older.

On July 25, MRK announced a quarterly dividend of $0.73 per share of the company’s common stock for the fourth quarter of 2023. Payment will be made on October 6, 2023, to shareholders of record at the close of business on September 15, 2023.

MRK pays $2.92 annually as dividends. Its 4-year average dividend yield of 2.96% exceeds the industry average of 1.32%. The company has increased its dividend payouts over the past 12 years and at a 9.6% CAGR over the past five years.

During the second quarter of the fiscal year 2023, MRK’s revenue increased by 3% year-over-year to $15.04 billion. Excluding the $10.2 billion, or $4.02 per share, charge for the acquisition of Prometheus Biosciences, Inc. (Prometheus), the company’s non-GAAP net income increased by 5% and 4.8% year-over-year to $4.98 billion and $1.96 per share, respectively.

Analysts expect MRK’s revenue and EPS for the fiscal third quarter to increase by 1.7% and 4.9% year-over-year to $15.22 billion and $1.94, respectively. The company has further impressed by surpassing consensus EPS estimates in each of the trailing four quarters.

The Coca-Cola Company (KO)

As a world-renowned beverage company, KO manufactures, markets, and sells various non-alcoholic beverages. The company operates through six segments: Europe, the Middle East, and Africa; Latin America; North America; Asia Pacific; Global Ventures; and Bottling Investments.

Over the last three years, which included a pandemic of all things, KO’s revenues have grown at an 8.7% CAGR, while its EBITDA has grown at 7.1% CAGR. The company’s net income has grown at a 4.6% CAGR during the same period.

On July 12, KO and its eight bottling partners from around the world announced the creation of a new $137.7 million venture capital fund focusing on sustainability investments. The fund would focus on key investments in packaging, decarbonization, and other initiatives with the potential to reduce KO’s system-wide carbon footprint.

During the fiscal 2023 second quarter, KO’s net revenue grew 6% year-over-year to $12 billion, while its organic (non-GAAP) revenue grew 11% year-over-year. During the same period, the company’s comparable (non-GAAP) EPS also grew 11% year-over-year to $0.78.

In concurrence with the company’s raised guidance, analysts expect KO’s revenue and EPS for the fiscal year 2023 to increase by 4.6% and 6.4% year-over-year to $45.02 billion and $2.64, respectively. Both metrics are expected to keep growing over the next two fiscals to come in at $49.92 and $3.03, respectively.

PepsiCo, Inc. (PEP)

PEP is a global manufacturer, marketer, distributor, and seller of beverages and convenience foods. The company operates through seven segments: Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin America; Europe; Africa, Middle East, and South Asia; Asia Pacific, Australia, New Zealand, and China Region.

Over the last three years, PEP’s revenues have grown at a 10% CAGR, while its EBITDA has grown at 7.7% CAGR. The company’s net income has grown at 4.9% CAGR during the same period.

On July 20, PEP announced its quarterly dividend of $1.265 per share, which translates to an annual dividend of $5.06. This signifies a 10 percent increase year-over-year. This dividend is payable on September 29, 2023, to shareholders of record at the close of business on September 1, 2023.

This marks PEP’s 51st consecutive annual dividend increase at a rate of 7.1% CAGR over the past five years.

During the fiscal 2023 second quarter, PEP’s organic (non-GAAP) revenue increased by 13% year-over-year, while its core (non-GAAP) EPS of $2.09 translated to a 15% year-over-year growth.

For fiscal year 2023, PEP now expects to deliver 10% organic revenue growth (previously 8%) and 12% core constant currency EPS growth (previously 9%).

Duke Energy Corporation (DUK)

As an energy company, DUK operates through two segments: Electric Utilities and Infrastructure (EU&I) and Gas Utilities and Infrastructure (GU&I).

Over the past three years, DUK’s revenue increased at a 6% CAGR, while its EBITDA has increased by 4.5% CAGR over the same time horizon.

On July 13, DUK announced its quarterly cash dividend of $1.025 per share of common stock, an increase of $0.02, and $359.375 per share on its Series A preferred stock, equivalent to $0.359375 per depositary share, payable on Sept.18, 2023.

DUK currently pays $4.10 per share of common stock as annual dividends, which have grown for the past 11 years and at 2.4% CAGR over the past five years. Through the consistent return of capital, DUK provides adequate income generation opportunities for investors to help them tide over economic uncertainty.

On August 15 and August 17, DUK filed a resource plan, and an updated Carbon Plan to serve the growing energy needs projected for South and North Carolina, respectively.

On July 6, DUK unveils Kentucky's largest utility-scale rooftop solar site, consisting of over 5,600 photovoltaic panels, at Amazon Air Hub. It will feed up to 2 megawatts of solar power directly onto the electric distribution grid.

For the six months of the fiscal that ended June 30, 2023, DUK’s total operating revenues and operating income increased by 2.1% and 12.4% year-over-year to $13.85 billion and $3.10 billion, respectively. As a result, the company’s net income and adjusted EPS for the period came in at $531 million or $2.10 per share, respectively.

US Bond Market Teeters on the Brink of Collapse – Seek Refuge in These 4 Stocks

Posted on by The INO.com Team

Last week, in line with broad expectations on the Street, Federal Reserve Chair Jerome Powell announced the unanimous decision by the FOMC to raise key interest rates by another 25 bps. With this move, the central bank has raised the benchmark borrowing cost to 5.25%-5.50%, ratcheting it up from nearly 0% in about 16 months.

With a 2.6% rise in inflation, down from a 4.1% rise in Q1 and well below the estimate for an increase of 3.2%, and an annualized increase of 2.4% in the gross domestic product in the second quarter, topping the 2% estimate, there is increasing belief in the Market that Jerome Powell and his team at the Federal Reserve may be on the cusp of achieving the elusive “soft landing.”

In Mr. Powell’s words, “The staff now has a noticeable slowdown in growth starting later this year in the forecast, but given the resilience of the economy recently, they are no longer forecasting a recession.”

However, ECB raised interest rates by a quarter percentage point shortly after, citing persistent inflation. In such a scenario, despite increased optimism, businesses are expected to remain weighed down by high borrowing costs, and economic activity is expected to remain stifled due to relatively scarce credit.

Hence, there is still a significant probability that in order to overcompensate for the infamous “transitory” call that caused the Fed to arrive (really) late in its fight against demand-driven inflation, the central bank may be sowing the seeds of economic stagflation.

Moreover, with every increase in benchmark interest rates, a selloff of long-duration fixed-income instruments, such as the 10-year treasury notes, gets triggered, which causes a slump in their market value and a consequent increase in their yields. This also increases the benchmark 30-year mortgage rates, thereby depressing demand and deepening the crisis in which real estate has lately been finding itself.

After benchmark 10-year yields jumped by as much as 15 basis points above the key 4% level, Peter Schiff, CEO and chief economist at Euro Pacific Asset Management, warned of a crash in Treasuries. He has also predicted the benchmark 30-year mortgage rates to soon hit 8%, a level last seen in 2000.
Mr. Schiff’s apprehensions have also been echoed by David Rubenstein, co-founder of The Carlyle Group, who expressed his concern regarding the fate of commercial real estate as millions of people stay home and companies try to figure out what to do with empty offices.

An increase in borrowing costs would not just raise the cost of servicing the $32.7 trillion national debt; significant markdowns prices of legacy bonds and an inability by borrowers to service them due to economic slowdown could crush the loan portfolios of struggling banks and make them go the way of the dodo, such as the Silicon Valley Bank and the First Republic Bank.

With the Bank of Japan’s policy tweak of loosening its yield curve control sparking widespread shock in the markets that have been teetering on the brink of collapse, there is a material risk that an apparently resilient economy could find itself regressing into a full-blown recession just as Jerome Powell’s colleagues at the Federal Reserve have stopped forecasting it.

With HSBC Asset Management’s warning that a U.S. recession is coming this year, with Europe to follow in 2024, gaining credibility with each passing day, investors increasing their stakes in fundamentally strong businesses could be a time-tested method to navigate Mr. Market’s wild mood swings between unbridled euphoria and manic depression.

Here are a few stocks that are worth considering amid this backdrop:

Apple Inc. (AAPL)

According to a recent note from Fairlead Strategies, the technology and consumer electronics giant could witness a major upside in its stock. According to the agency, the stock could jump to $254 by the end of 2024.

AAPL, which has a history of revolutionizing products like the personal computer, smartphone, and tablet, has begun scripting the next key chapter in its success story with the announcement of its first product in the AR/VR market, the Apple Vision headset, which will sell for $3,499 when it is released early next year.

Regardless of any near-term and temporary softness and slowdown, a compounding machine such as AAPL, which boasts a sticky user base with a retention rate of over 90%, assures the company of adequate cash flow through repeat purchases and upgrades.

Moreover, AAPL’s board authorized $90 billion in share repurchases and dividends. It spent $23 billion in buybacks and dividends in the March quarter and raised its dividend by 4% to 24 cents per share.

Through relentless share repurchases, AAPL increased the existing shareholders' stake by decreasing its float, thereby increasing the remaining shares' intrinsic value (and consequently the price) without a proportional rise in market capitalization.

Johnson & Johnson (JNJ)

JNJ has been around for 135 years and is a worldwide researcher, developer, manufacturer, and seller of various healthcare products. The company operates through three segments: Consumer Health; Pharmaceuticals; and MedTech.

Over the past three years, which have been turbulent, to say the least, JNJ’s revenue has grown at a 6.7% CAGR. During the same period, the company also registered EBITDA and total asset growth of 7.7% and 8.1%, respectively.

Despite flagging sales of Covid 19 Vaccines, JNJ’s reported sales during the fiscal year 2023 second quarter increased by 6.3% year-over-year to $25.53 billion. During the same period, the company’s adjusted net earnings increased by 6.5% and 8.1% year-over-year to $7.36 billion and $2.80 per share, respectively.

In addition to its robust financials, the relative immunity of its demand and margins to potential economic downturns make it an attractive investment option for solid risk-adjusted returns.

Walmart Inc. (WMT)

In a previous discussion, we deliberated on how, despite inflationary pressures and online retail altering brick-and-mortar stores in today’s economy, budget retailers, such as WMT, have been relatively immune to the seismic shifts in the consumption ecosystem.

In fact, WMT has attracted new and more frequent shoppers, including younger and wealthier customers, who are turning to Walmart for both convenience and value. Consequently, according to its earnings release for the first quarter of the fiscal year 2024, the big-box retailer surpassed expectations for both earnings and revenue, with sales rising by nearly 8%.

Encouraged by the strong performance, WMT also raised its full-year guidance. It anticipates consolidated net sales to rise about 3.5% in the fiscal year. It expects adjusted earnings per share for the full year will be between $6.10 and $6.20.

WMT’s sales have reflected the shift toward groceries and essentials, with the former accounting for nearly 60% of the annual U.S. sales for the nation’s largest grocer. In fact, WMT’s grocery business helped to offset weaker sales of clothing and electronics, as sales of general merchandise in the U.S. declined mid-single-digits, while sales of food and consumables increased low double-digits.

Another bright spot for the retail giant has been growth in online sales, which jumped 27% and 19% year-over-year for Walmart U.S. and Sam’s Club, respectively. According to Rainey, curbside pickup and home delivery of online purchases fueled the growth.

Far from being complacent, WMT has been doubling down on initiatives, such as reducing and optimizing packaging and leveraging AI/ML to increase the efficiency of its operations.

Duke Energy Corporation (DUK)

As an energy company, DUK operates through two segments: Electric Utilities and Infrastructure (EU&I) and Gas Utilities and Infrastructure (GU&I).
Over the past three years, DUK’s revenue increased at a 5.4% CAGR, while its EBITDA has increased by 4.2% CAGR over the same time horizon.

On July 13, DUK announced its quarterly cash dividend of $1.025 per share of common stock, an increase of $0.02, and $359.375 per share on its Series A preferred stock, equivalent to $0.359375 per depositary share, payable on Sept.18, 2023, to shareholders of record at the close of business on Aug.18, 2023.

DUK currently pays $4.10 per share of common stock as annual dividends, which have grown for the past 11 years and at 2.5% CAGR over the past five years. Through the consistent return of capital, DUK provides adequate income generation opportunities for investors to help them tide over economic uncertainty.
On July 6, at Amazon Air Hub, DUK unveils Kentucky's largest utility-scale rooftop solar site, consisting of over 5,600 photovoltaic panels. It will feed up to 2 megawatts of solar power directly onto the electric distribution grid.

Utility companies such as DUK provide essential services that remain relevant and in demand regardless of economic inconsistencies.