Duke's Dividend Stays Put

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Duke Energy (NYSE: DUK) stifled recent speculation of a forthcoming dividend cut by announcing today that it will keep its annual dividend of $1.10 per share and will sell assets to pay down its debt. Shares rose over 5% in heavy trading, as investors cheered the company's decision to keep its fat dividend yield of over 5% intact.

Duke also announced steps that will reduce its exposure to merchant energy and international markets. The company will sell Duke Energy North America's (DENA) merchant plants in the Southeast U.S., while exiting the European market and divesting its Australian assets. In addition, the company will wind down Duke Energy Trading & Marketing, its joint venture with ExxonMobil (NYSE: XOM). The company's moving towards a more modest growth strategy, hoping that its hefty yield will keep shareholders happy.

The company will take a $3.3 billion charge in the fourth quarter from the asset sales, and will, in turn, report a net loss of $1.45 to $1.50 per share for fiscal 2003. However, the company still expects earnings from continuing operations of $1.20 to $1.25 per share.

Duke CEO Paul Anderson also said that DENA would remain a drag on earnings for at least the next year, but that the company's franchised electric, natural gas, and other operations would provide "significant and dependable earnings and cash flows." In fact, 2004 cash flow is expected to fund $2.2 billion in capital expenditures, and along with the asset sales, should allow Duke to reduce its $22.4 billion debt by $3.5 billion to $4.5 billion.

Duke's management has demonstrated its commitment to these goals. Anderson, whose compensation is solely composed of stock options and dividends, won't be compensated at all if Duke's earnings fall below $1.10 - the amount of the dividend. That is a bold statement, which might be construed as either a wild gamble, or a strong vote of confidence and sign of strong leadership. I'm willing to bet on the latter.

Want to learn about other companies with giant dividend yields? Check out The Motley Fool's Income Investor. Place your vote on the Duke Energy discussion board - only at Fool.com.

Jeff Hwang can be reached at JHwang@fool.com.