Duke Energy Corporation (NYSE:DUK) has announced that it will be increasing its periodic dividend on the 16th of September to $1.07, which will be 1.9% higher than last year's comparable payment amount of $1.05. This takes the annual payment to 3.4% of the current stock price, which is about average for the industry.

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Duke Energy's Projected Earnings Seem Likely To Cover Future Distributions

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, Duke Energy's earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

The next year is set to see EPS grow by 21.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 60%, which is in the range that makes us comfortable with the sustainability of the dividend.

View our latest analysis for Duke Energy

Duke Energy Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2015, the annual payment back then was $3.18, compared to the most recent full-year payment of $4.18. This means that it has been growing its distributions at 2.8% per annum over that time. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

Dividend Growth May Be Hard To Achieve

The company's investors will be pleased to have been receiving dividend income for some time. Earnings have grown at around 3.3% a year for the past five years, which isn't massive but still better than seeing them shrink. Duke Energy is struggling to find viable investments, so it is returning more to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 2 warning signs for Duke Energy (of which 1 shouldn't be ignored!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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