Final Project WS

7

Duke Energy

Warren Salvodon

Ashford University

BUS401

September 10, 2021

Part 1: Dividend Analysis

Date	Name	Price	Dividend	Yield	Annual growth rate
05/05/2021	Duke Energy Corp	100.54	3.82	-	2%
05/06/2020	Duke Energy Corp	80.31	3.75	-	3%
05/01/2019	Duke Energy Corp	89.81	3.64	-	4%
05/02/2018	Duke Energy Corp	79.76	3.49	-	4%
05/03/2017	Duke Energy Corp	82.59	3.36	-	4%
05/04/2016	Duke Energy Corp	80.18	3.24	4.54	3%
05/06/2015	Duke Energy Corp	76.81	3.15	3.77	2%
04/30/2014	Duke Energy Corp	74.58	3.09	4.48	1%
05/01/2013	Duke Energy Corp	74.78	3.03	4.75	4%
05/02/2012	Duke Energy Corp	64.20	2.97	4.50	3%
05/04/2011	Duke Energy Corp	56.16	2.91	5.45	3%

The Most Recent 10, 5 and 3 Years

Date	Annual growth rate
05/05/2021	2%
05/06/2020	3%
05/01/2019	4%
05/02/2018	4%
05/03/2017	4%
05/04/2016	3%
05/06/2015	2%
04/30/2014	1%
05/01/2013	4%
05/04/2011	3%
Period of Years	Average dividend growth rate
10 yrs	3%
5 yrs	3.4%
3 yrs	3%

Summary of the Dividend Growth

The average dividend growth for the company has remained constant at 3% in both periods. However, the average growth over the last five years had a slight increase of 0.4% compared to other periods (Insider, 2021). During the previous ten years, the company’s average growth was impacted by the constant dividends it paid. It continuously inclined from 1% to 4%. Over the last five recent years, the average increased as it stagnated at 4% in about three consecutive years (Thakur, 2021). However, over the previous three recent years, the average dividend growth declined with the decline of dividends it paid during the period of years.  

Distinct Estimates of the Future Dividend Growth Rate

           Based on the Low-End Growth Rate and its dividend growth rate, the company has reached its minimum, and the only way is forward. It is likely to increase its dividend growth to 3%, and after another, it may jump to 4% when High-End Growth Rate is the concern. However, in the High-End Growth Rate, the company is more likely to experience an inconstant dividend growth rate in the long term. Over the last ten recent years, it has shown the potential of constant incline and decline over the period. The pattern is more likely to repeat itself over the next ten years to come. 

           Based on its ROA, the company has been stable in making a profit from its assets, but the values have varied over the year, that is, 1.8, 2.25, and 0.66 in 2018, 2019, and 2020, respectively. Likewise, it has had variance over the recent years in its ROI, that is, 2.76, 3.48, and 1.03 in 2018, 2019, and 2020, respectively. As such, this indicates how the dividends paid to its shareholders will continue varying with the financial ratios.     

Part 2: Preliminary Valuation

Low-End Growth Rate

The constant growth rate is calculated as P = D/(r-g) where P is the current dividend price while D is the next dividend price it is anticipated to pay it shareholders. Also, r is referred to the required return rate for the entity while g is the anticipated growth rate in dividend. As such, the company’s stock price will be calculated as;

Price = D(1+g) / (r - g)

The Duke’s dividend growth is, that is, the low-end dividend growth rate based on the above calculation (g) is 3%. The company’s most recent annual dividend (D) is $3.82 per share. Taking a large capitalization discount rate (r) of 10%;

Price = $3.82(1 + 0.03) / (0.1 – 0.03)

Price = 3.93 / 0.07

Price = $56.14

For a mid-cap company;

D = $3.82

r = 12.0%

g = 3%

Price = $3.82(1 + 0.03) / (0.12 – 0.03)

Price = 3.93 / 0.09

Price = $43.67

For a small-cap company;

D = $3.82

r = 15%

g = 3%

Price = 3.93 / 0.12

Price = $32.75

High-End Growth Rate

Similar to the first step above, the high-end growth rate will be calculated the same only that g will be considered as 4%. This is the Home Depot’s high-end dividend growth rate in the first calculation. For a larger capitalization company with 10%, the stock price will be calculated as;

D = $3.82

r = 10%

g = 4%

Price = D(1+g) / (r - g)

Price = 3.82 (1 + 0.04) / (0.1 – 0.04)

Price = 3.97 / 0.06

Price = $66.17

Under the low-end dividend growth rate, the stock price per share is $56.15, while under the high-end dividend growth rate, the stock price is estimated at $66.17. On the other hand, the current stock market for the company is $103.81. The company's current stock price is more excellent by almost twice its stock prices in both low-end dividend and high-end dividend growth rates. Based on the analysis, the concluded value for Duke Energy is $66.17 per share. The conclusion utilizes 15% as the dividend growth rate according to its strong interest coverage ratio and inclining revenues. However, according to the information above, the constant growth rate seems to be lower than the company's current market price of $103.81. As such, the stock can be considered or stated as overvalued on the market.

References

Insider. (2021). Markets Insider: Duke Energy Corp. Retrieved from;

https://markets.businessinsider.com/stocks/duk-stock

Thakur M., Vaidya D. (2021). Dividend Growth Rate: What is Dividend Growth Rate? Retrieved from;

https://www.wallstreetmojo.com/dividend-growth-rate/