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Duke Energy Corp (DUK) and Random-Chance Utility Investing

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Investing in utilities can be a very good move … if the right sort of luck is with you.

A recent story about Duke Energy Corp (NYSE:DUK) indicates just how much of a factor random chance can play in investing. Sure, that’s true for all investing, but for utilities investing it’s more obvious than in other sectors. In its recent earnings call, Duke said that its first quarter profit was up because the weather was cool, extending the heating season.

Given that I’m relatively certain Duke Energy Corp (NYSE:DUK)’s management team can’t control the weather, this is a perfect example of how dependent utilities can be on luck. What would have happened over the winter if temperatures had been mild? Nothing good for Duke – or other utilities. And a year in which moderate temperatures hit both winter and summer (though never here in South Carolina, trust me) could undercut profits and the value of your investments.

Still, utilities can be a good investment for the right people. Given that they have a captive audience – the vast majority of people want to have electricity, after all – utilities can be good for some investors less focused on growth.

Income, income, it’s our friend

Duke Energy Corp (NYSE:DUK)

12-Month Gain P/E EPS Dividend Yield Net Margin
15.14% 22.49 3.31 4.11% 8.90%

Duke has just barely kept pace with the S&P over the last year. I can understand investors’ concerns over this. If you go further back, over a five-year period it beat the S&P and over 10 years it was beaten. Still, growth isn’t everything for huge, highly regulated firms. Income should also be a major factor.

And Duke Energy Corp (NYSE:DUK) has income–it’s currently paying a very good 4.11% dividend. So while you can pretty much count on it growing about as fast as the market, you’re also getting one of the best yields out there. It’s grown quite a bit over the last year, as the company has tried to put the merger with Progress Energy behind it so it’s unknown if that level will continue, but it’s much easier to justify raising yield than dropping it. Duke Energy Corp (NYSE:DUK) should be a good investment for income investors for the foreseeable future.

The Southern Company (NYSE:SO)

12-Month Gain P/E EPS Dividend Yield Net Margin
4.19% 20.14 2.35 4.30% 14.60%

Another big utility in the low-growth high-dividend space is The Southern Company (NYSE:SO). If anything, The Southern Company (NYSE:SO) is a more reliable high-yield investment than Duke Energy Corp (NYSE:DUK). It’s paid a dividend consistently above 4% for more than 5 years (except for one small dip to just below 4% in 2012).

Despite that, it hasn’t kept up with the S&P this year. You’ll find that to be a trend with some utilities; they’ll have some years when they underperform and some when they overperform, but the dividend stays right up there. Again, for the five-year mark it’s over and for the 10-year mark it’s under. Try not to get too worked up about it and enjoy the income stream from the dividend.

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