DUK - Duke Energy: Overvalued As Dividend Coverage Falters With Political And Financial Risk

2024-04-08 23:17:45 ET

Summary

• Due to higher bond yields, utilities, and consumer staples have been the worst-performing sectors in the stock market over the past twelve months.
• Rising interest rates lower utility fair valuations and increase interest costs, which are not necessarily covered by rate increases.
• Duke Energy, one of the largest US utilities, faces challenges with its valuation, dividend coverage, and high leverage.
• The company needs to increase its revenue to offset an income rise in its interest costs as it refinances its debt, but bipartisan action against it is growing.
• In my view, DUK gambled that its GOP support allowed it to push interest costs onto customers after raising its leverage, but the populist shift is proving the bet wrong.

While most stock market sectors rose over the past six months, the utilities segment has failed to keep up. Utilities are the worst-performing sector over the past twelve months, with the sector fund ( XLU ) losing 6% of its value. The second-worst is consumer staples ( XLP ), with a 1.3% loss. Those figures compare to a 27% increase in the S&P 500, rebounding from its 2022 drawdowns....

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