Duke Energy Corp (DUK) Earnings: Is Its Dividend Worth It?

Duke brought three new North Carolina power plants online in 2012, setting itself up to retire 3,800 MW of coal capacity by the end of the year. By 2015, the utility plans to retire up to 6,800 MW of inefficient coal plants. Duke also tagged on five new wind farms and three solar farms in 2012, adding 650 MW to its 1,700 total MW of wind and solar generation capacity .

This multiyear modernization project doesn’t come cheap, and Duke has already spent $7 billion to get to where it is today. Over the next decade, the utility expects to dish out an additional $5 billion to $6 billion.

But the company recognizes that spending today will mean saving (and earning) tomorrow. During the Q&A portion of the earnings call, Rogers went so far as to make a direct jab at one of his company’s competitors: “Our modernization plan is ahead of most utilities in the country. If you look at The Southern Company (NYSE:SO) today, they are just now starting down the road of modernization of their generation fleet.” I fact-checked Rogers, and he’s right. In the past three years, Southern has spent 26% of its sales on capital expenditures, while Duke has doled out 32%.

Priced for perfection?
Duke’s stock outperformed its sector for 2012 and has risen a whopping 32% since its merger announcement in January 2011. With an above-average 4.4% dividend yield and some of the best margins around, let’s see how its valuation compares with that of its peers:

Company Price-to-Sales Ratio Price-to-Tangible Book Value Ratio
Duke 2.80 2.00
Exelon 1.15 1.42
Southern Company 2.33 2.07
FirstEnergy Corp. (NYSE:FE) 1.05 2.43
Atlantic Power Corp (NYSE:AT) 2.46 -23.94

Sources: YCharts and Yahoo! Finance.

First Energy is in the bargain bin for sales, while Atlantic Power is dirt cheap in terms of its tangible book value. But First Energy still relies on coal for 64% of its generation, and Atlantic’s unsustainably high dividend make me question its current long-term value. Duke’s priciness plays through when you consider its sales, but its price-to-tangible book value ratio toes the middle line. The company isn’t cheap, but it’s not priced for perfection, either.

Dastardly Duke
When I wrote about Duke’s Q3 earnings, the wounds from merger madness were too fresh for me to feel comfortable judging this utility’s future. But with legal battles behind it and a solid fourth quarter, I’m ready to make an “outperform” call on my Motley Fool CAPS page. Duke is setting itself up for better effectiveness and efficiency, and I’m looking forward to seeing where it heads in the next few years.

The article Duke Energy Earnings: Is Its Dividend Worth It? originally appeared on Fool.com and is written by Justin Loiseau.

Fool contributor Justin Loiseau has no position in any stocks mentioned. You can follow him on Twitter, @TMFJLo, and on Motley Fool CAPS, @TMFJLo. The Motley Fool recommends Exelon and Southern.

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