No matter what happened, I had to cut this company a check every month.
It didn’t matter if business was booming or faced a rotten quarter.
Well before I broke ground on every new property back in my real estate development days, there was one company I had no choice but to cut a deal with.
And I learned early on that it was playing the long game.
When I built shopping centers, the company even paid to have the light poles in the parking lots installed…
Not out of the kindness of their hearts, but because they knew that once these installations were up, they’d have me on the hook for years to come. And set themselves up to receive reliable cash flows for decades.
I’m talking about my favorite local electric utility, Duke Energy (DUK). Today, I’ll share with you why owning this stock will allow you to sleep well at night (SWAN) regardless of the market volatility on the horizon.
The Utility Company I’ve Known All My Life
I’ve written checks to this company every month for my adult life. And as long as I live in South Carolina, that’s not going to change.
I don’t have a choice if I want to keep the lights on.
And neither do any of the other 8.2 million customers that this $69 billion dollar company has throughout its service area.
Duke Energy’s coverage includes not only South Carolina, but also North Carolina, Florida, Indiana, Ohio, and Kentucky.
In the digital age, life revolves around electricity. And utilities are crucial to providing that need.
But Duke Energy isn’t just an electric play.
In 2016, it acquired Piedmont Natural Gas, which supplies gas to businesses and residential homes throughout South Carolina, mine included. And it’s leading in its service, as well.
In 2022, Duke’s natural gas segment was awarded the top spot for residential gas customer satisfaction amongst all large utilities in the South by none other than J.D. Power, a leading firm in market research.
And Duke Energy is very strategic in choosing its customer base. Its service coverage is focused on states that have relatively low regulation, attractive tax structures, and business-friendly legislatures.
Both its residential and industrial customer bases are growing. Census data shows that the top 10 locations that showed the most absolute population growth over the last year were all in the sunbelt.
And I expect to see that continue in the coming years thanks to the mass shift from coastal urban to sunbelt areas.
Duke Is a Growing Monster of an Energy Play
During Q1 of 2023, Duke saw its residential customers rise by 1.7%.
The Carolinas led the way with 1.8% growth, followed by Florida at 1.7%, and the Midwest at 1.4%.
And it expects to see its customer count continue. Duke is predicting 0.5% annual growth between now and 2027.
Its reliable growth is not a recent accomplishment, but a long-term strength of the company. It’s allowed Duke Energy to pay its shareholders a reliable dividend for nearly a century.
Duke Energy has paid a dividend for 96 years now… and has raised it every year for the last 18 years as you can see below.
And that’s not all. Duke Energy has had positive year-over-year earnings per share (EPS) growth for 14 of the last 20 years.
It was resilient during the COVID-19 panic and has posted positive EPS growth for five years in a row.
This, combined with Duke’s relatively low dividend payout ratio of 71%, tells me Duke’s dividend increase streak is just getting started.
Remember, when a company’s dividend payout ratio (the ratio of total dividends paid compared to the company’s net income) is low, it signals it’s sustainable and reinvesting capital back into growing it business. And for utility companies, we consider anything below 80% acceptable.
And if you’re worried about an impending selloff due to the recession… Utilities like Duke are the perfect type of stocks to hold. According to historical data, DUK shares are likely to fall about 60% less than the rest of the stock market.
Plus, because of its compounding potential, Duke’s dividend is more reliable than the slightly higher yields associated with money market accounts.
Remember, inflation is going up every year. And you want your dividends to go up with it.
So in today’s volatile economic environment with the threat of a recession on the horizon or perhaps already here… This blue-chip utility is exactly the type of company you want in your portfolio.
You can sleep well at night knowing that its defensive, steady cash flows will protect you in the coming weeks, quarters, and years. Regardless of what macroeconomic shifts we face.
We also have an entire portfolio of SWAN stocks in our Intelligent Income Investor service. To find out more and receive another free pick, click here.
Happy SWAN (sleep well at night) investing,
Brad Thomas
Editor, Intelligent Income Daily