1 Great Dividend You Can Buy Right Now

Updated

Dividend stocks are everywhere, but many just downright stink. In some cases, the business model is in serious jeopardy, or the dividend itself isn't sustainable. In others, the dividend is so low it's not even worth the paper your dividend check is printed on. A solid dividend strikes the right balance of growth, value, and sustainability.

Today, and one day each week for the rest of the year, we're going to look at one dividend-paying company that you can put in your portfolio for the long term without too much concern. This isn't to say these stocks don't share the same macro risks that other companies have, but they are a step above your common grade of dividend stock. See last week's selection.

This week, I'm going back to an old favorite which have found itself in a bit of hot water in recent months, Duke Energy (NYS: DUK) .


Looking past CEO-gate
Duke Energy, the nation's largest electric utility (assuming its merger with Progress Energy), has long been in my good graces as a perennial outperformer in the utility sector because of its incredible pricing power. However, in July, some of that stone exterior was chiseled away when Duke's management made a mockery of the company during its merger proceedings with Progress Energy.

As I highlighted in my weekly CEO Gaffe series, the former head of Progress Energy, Bill Johnson, was to take over as the new head of Duke Energy under the merger agreement, but was promptly fired and given $44 million in compensation just hours into his tenure. This move ticked off shareholders on both sides, annoyed regulators from the Carolinas (where Duke primarily operates), and scared Progress employees half to death about whether they'd retain their jobs.

It's now been almost two months since Duke's "CEO-gate" shocked the world, but we're finally starting to see clarity and, more importantly, reasons to buy into the merged businesses. I'm not saying that Duke won't still contend with opposition from regulators, but I am saying that dissolution of the merger is unlikely.

Large and in charge
Perhaps the biggest advantage of this merger is it should result in lower electricity prices for consumers. You might automatically think that a bigger company serving 7.1 million customers would have incredible, possibly unfair, pricing power. Instead, the company had pledged to lower electricity rates by as much in 6% in certain areas, to refund municipal and rural electric cooperatives, and to focus on building out its already impressive renewable energy portfolio.

Duke's renewable efforts come in second only to NextEra Energy (NYS: NEE) , whose renewable electric generation leads the nation. Still, for Duke, its efforts to convert coal-burning plants to run off natural gas and to focus on wind, hydroelectric, and biomass for future growth is winning over shareholders and lowering cost projections for its customers.

Duke has invested $2.5 billion in wind farms over the past five years leading to electrical-generating capabilities of more than 1,000 MW annually. In addition, Duke and Progress are working with Carolina regulators on developing biomass-capable facilities that will turn animal waste into electricity. When this project becomes reality, Duke will join a very small list of electric utilities, including Hawaiian Electric Industries (NYS: HE) , that are generating energy from biomass.

These additional energy sources might seem trivial, but they are the reason that Duke is fairing so well in relation to the second-largest electricity producer in the nation, Exelon (NYS: EXC) , a previously featured "great dividend you can buy right now." Exelon's ties to coal and nuclear energy are a deterrent in a low-priced natural gas and renewable energy environment and have given Duke a clear edge.

What we're really here for
Now, please take your seats and let's dive into what we really came here for - Duke's impeccable dividend!

Source: Nasdaq.com. All payouts adjusted to reflect 1-for-3 reverse split in 2012, *Doesn't include $13.88 one-time payout to shareholders for Spectra Energy spinoff. **Assumes payout of $0.765 per quarter.

You may notice that Duke's quarterly payout did take a hit in 2007, but that had absolutely nothing to do with Duke's profitability and everything to do with the spinoff of its natural gas business, Spectra Energy (NYS: SE) . Since that spinoff, Duke's annual dividend has risen in six straight years and now sits at 4.7% with a payout ratio of 69% based on fiscal 2012's earnings. Although that payout is a bit high (which isn't a horrible thing, as it means shareholders are getting more in their pockets), I wouldn't read too much into that with the Progress merger expected to propel EPS higher as cost synergies are realized and renewable energy projects lower costs.

Foolish roundup
We're well past the point where Duke Energy will surprise investors with double-digit earnings growth, and you won't get rapid dividend expansion either. What investors can expect from Duke is consistent cash flow regardless of whether the economy is in a recessionary or expansionary period, a move toward cleaner-burning fuels, and a continued focus on returning capital to shareholders. You can get a 5% yield from more than a handful of utilities, but few have the complete package like Duke Energy.

If you're craving even more dividend ideas, I invite you to download a copy of our latest special report, "Secure Your Future With 9 Rock-Solid Dividend Stocks," which is loaded with income-producing companies hand-selected by our top analysts. Best of all, this report is free, so don't miss out!

The article 1 Great Dividend You Can Buy Right Now originally appeared on Fool.com.

Fool contributor Sean Williams has no material interest in any of the companies mentioned in this article. His dog would be happy to make regular biomass contributions to Duke Energy if they're interested. You can follow him on Motley Fool CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Motley Fool newsletter serviceshave recommended buying shares of Exelon and Spectra Energy, as well as creating a covered straddle position in Exelon. Try any of our Foolish newsletter services free for 30 days.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that doesn't run on hot air.

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