Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Duke Energy Corp (DUK), Arch Coal Inc (ACI), Peabody Energy Corporation (BTU): New Gas Plants

Duke Energy Corp (NYSE:DUK) recently decided to stop development on a nuclear facility in Florida and to retire some coal assets. It’s looking to build gas plants instead. This is good news for natural gas and coal.

Duke Energy Corp (NYSE:DUK)Duke shares recently yielded around 4.6%. The dividend has been increased annually since a 30% cut back in 2007. The top line has headed generally higher, too, going from $12.7 billion to $19.6 billion. Earnings haven’t been as consistent and were actually lower in 2012 than they were in 2007.

The second quarter seemed to continue that trend, however the weak results were largely driven by write offs. The biggest being over $380 million for the closure of a nuclear facility and the cessation of the development of another. Merger Integration costs, related to the acquisition of Progress Energy, were also a drag. Still, management continues to project earnings of $4.20 a share to $4.45, excluding such items.

Getting out from under uncertain and high-cost nuclear projects is actually a part of the company’s Progress Energy integration process. That merger materially changed the company’s makeup, creating the largest U.S. utility and shifting Duke Energy Corp (NYSE:DUK)’s business more toward the regulated end of the spectrum. Cost savings are the focus for the near future.

That said, income investors looking for a large utility should take a look. Duke Energy Corp (NYSE:DUK) has notable businesses in the Carolinas and Florida, warmer states that should see continued population growth as baby boomers retire and head “south.” Moreover, despite the shift out of nuclear, the company will still be building new power plants. That should lead to rate increases and higher revenues and earnings over the long term.

New gas plants

In Florida alone, the company is examining adding over 1,100 megawatts of natural gas power plants. It is also set to close nearly 900 megawatts of “unscrubbed” coal generation. This continues the industry’s long-term shift toward cleaner burning natural gas. That’s a good thing for the demand side of the equation for the fuel. This trend, along with the use of natural gas to power vehicles and the increasing push to export it, should help to support natural gas prices over the long haul.

That, however, is a mixed blessing for utilities since higher natural gas prices means paying more for a fuel that is being increasingly used for power generation. In fact, higher gas prices is why each of the first four months of this year saw a year over year decline in the use of natural gas, according to the U.S. Energy Information Administration (EIA). Coal use, on the other hand, was up in each of those months.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.