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The Recently Recommended Monthly Stock Special
Recently Recommended

The recently recommended company is *Duke Energy Corp. (DUK)

Company Information:

Founded in 1916 and headquartered in Charlotte, North Carolina, Duke Energy has grown from a local electric utility into an international energy provider, which operates through three segments: Electric Utilities and Infrastructure, Gas Utilities and Infrastructure, and Commercial Renewables. DUK operates in the vibrant Southeastern United States, where population growth continues to exceed national averages, and the company has shown willingness to not only grow through major acquisitions, but to also restructure its collection of business units to achieve maximum efficiency. Duke Energy is considered a defensive stock, since it provides a constant dividend and stable earnings, regardless of the state of the overall stock market, because of the growing demand for its products. As a defensive stock, it tends to remain stable during the various phases of the business cycle, and tends to perform better than the broader market during recessions.


Its current total market capitalization of $64.6 billion makes DUK a large capitalization stock (a large-cap stock has a market capitalization value of more than $10 billion) with a long history of consistent earnings growth and dividend payments. It is considered a solid business with a durable competitive advantage over its rivals, which enjoys a solid management and corporate culture. According to Yahoo! Finance, consensus estimates call for the company to earn about $5.02 per share this year, up from $4.72 per share last year, and to go to about $5.15 per share next year. DUK has paid dividends to investors since 1926, and has increased its payments for twelve consecutive years. During the past five years it has increased its dividends at an average rate of 3.52%, with its quarterly payment of 95 cents currently providing a yield of 4.27%.


The value of dividends reinvestment: A hypothetical investment in DUK has grown cumulatively (including dividends reinvested) 6,024.20% during the past forty years. The same investment has grown only 1,050.71% during the same period of time, excluding dividends. The stock exhibits a Dividend Payout Ratio (DPR is the proportion of earnings paid out as dividends to shareholders) of 77.8%, which means the company is paying out 77.8% of all its net income in dividends, and is retaining some percentage of its earnings to reinvest or grow the business. Its current Price to Earnings ratio (P/E --a measure of valuation) of 18.49 is 11% below the US Market Index, and the forward P/E ratio is 17.1. Its Price to Book ratio of 1.45 is 52.7% below the index, and its Price to Cash Flow of 8.98 is 33.7% below the index.


Technically (from the chart’s perspective) DUK also looks attractive, trading 9.4% below its 52 weeks high, while it is forming a price consolidation pattern between $97 and $86 approximately, in which $86 is acting as a strong technical support level. The index funds Vanguard Total Stock Market Index and Vanguard 500 Index are the biggest shareholders of DUK, holding 2.8% and 2.0% of its shares respectively. The stock is also one of the 63 holdings of the mutual fund managed by Moneypaper Advisors, the MP 63 Fund (DRIPX). Duke’s main competitors are American Electric Power Co. Inc. (AEP) and Dominion Energy Inc. (D).


Volatility and risks: DUK’s five-year Beta (a measure of the volatility, or systematic risk in comparison to the market as a whole as evidenced by the S&P 500® Index) is only 0.07, so the stock is 93% less volatile than the Market. Best and worst years during the past 40 years: Its best year was 2000, in which DUK returned, excluding dividends, 70.07%. On the flip side, its worst year was 2002, when the stock declined 50.23%, excluding dividends. DUK’s Dividend Reinvestment Plan charges no fees for cash investing, dividend reinvestment, safekeeping, automatic investment or termination of the plan. With the stock being fundamental and technically attractive, this company is an appropriate holding for investors who wish to build a holding over the long term.


Disclosure: Mario Medina has no position in Duke Energy (DUK), and has no plans to initiate any position in the immediate future. However, the author is the co-manager of the MP 63 Fund (DRIPX), which does hold a position in the company. The author wrote the article himself and it expresses his own opinions. The author has no business relationship with DUK and this article is not intended as a recommendation to invest as the information published does not take into account any subscriber's personal finances, goals or risk tolerance. Accordingly, you should be aware of all the risks associated with any financial investment and should consult an independent financial advisor for any personal investment advice.


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