Duke's Less Than Princely Results

Duke Energy (NYSE: DUK  ) disappointed investors with weak second-quarter results. Sales and earnings missed analyst estimates, making it unlikely that Duke's stock will be able to continue its remarkable performance over the past year.

Compared with the second quarter last year, operating revenue increased $330 million, or 6.2%, to $5.65 billion. Mild weather dampened demand for both the merchant and regulated-electric businesses. Net income fell $123 million, or 28.5%, to $309 million. Income results were especially disappointing because the company's debt reduction efforts reduced interest expense by $39 million.

The news wasn't a lot better at Cinergy (NYSE: CIN  ) , the company Duke plans to acquire for roughly $9 billion in stock. Net income fell $7.8 million, or 13.3%, to $50.7 million, hurt by weakness in commercial gas operations.

Duke's stock has been anything but a wilting violet, up 36.8% over the past 52 weeks. That handily beats the 13% gain by the Standard & Poor's 500 but doesn't match the 57.1% gain from Constellation Energy (NYSE: CEG  ) or the 96.7% gain from Allegheny Energy (NYSE: AYE  ) , fellow merchant-power casualties after the bubble burst (merchant power companies produce power as a commodity).

The potential for Duke is clear when you look at its profit margins. Class act -- and fellow Motley Fool Income Investor recommendation -- Southern Company (NYSE: SO  ) has a 12.7% trailing annual profit margin. Compare that with Duke's profit margin in the second quarter -- a measly 5.4% (and, before that quarter, the trailing annual profit margin was 9.1%). Just improving margins to industry highs would greatly affect profitability.

Unfortunately, analysts do not see the company growing earnings more than 5% annually for the next five years. A 3.7% dividend will help inflate total returns, but that 5% growth rate leaves a lot to be desired -- as did the less-than-princely quarterly results for Duke and Cinergy.

Constellation Energy is another Income Investor pick. Are you looking for great companies with outstanding dividends that offer both long-term capital gains and dividend growth? Try a free trial to theIncome Investor newsletter.Click herefor more details.

Fool contributor W.D. Crotty owns shares in Southern Company. The Fool has a strict disclosure policy.