Why Investors Should Consider Selling Duke Energy’s DUK.PR.A Preferred Stock Now

Duke Energy’s DUK.PR.A preferred stock has long been a staple in income-oriented portfolios, offering a steady 5.75% dividend yield. However, as market conditions evolve and risks materialize, this once-attractive investment may now warrant a closer look—and a potential exit strategy. Below, we dissect the key factors driving the case to sell DUK.PR.A before it’s too late.

Key Features of DUK.PR.A

• Dividend Yield: 5.75% (as of February 2025), paid quarterly ($0.359375 per share).
• Perpetual Structure: No maturity date, but callable at $25.00 per share after June 15, 2024.
• Non-Cumulative Dividends: Missed payments are not owed to investors.
• Current Price: $25.28 (as of February 2025), trading at a 1.12% premium to its $25.00 liquidation preference.

Reasons to Sell DUK.PR.A

1. Interest Rate Risk Threatens Capital Appreciation

Preferred stocks are highly sensitive to interest rate movements. With the Federal Reserve signaling potential rate hikes in 2025 to combat inflation, the price of DUK.PR.A could drop sharply. A would likely show an inverse correlation. At a current yield of 5.69%, DUK.PR.A’s price could fall further if rates rise, eroding principal value.

2. Call Risk: Duke Could Redeem at Par, Limiting Upside

As a perpetual security, DUK.PR.A is callable at Duke Energy’s discretion at $25.00 per share. While no redemption has been announced yet, the post-June 2024 call date means Duke could retire the stock at any time. Investors holding near the $25.28 price would face a 0.32% loss if called immediately. With Duke’s strong balance sheet and a history of capital discipline, this risk is real.

3. Non-Cumulative Dividends Pose Income Volatility

Unlike cumulative preferred stocks, DUK.PR.A’s dividends are not guaranteed. If Duke chooses to defer payments (a right it retains for up to 12 consecutive quarters), investors lose that income permanently. While Duke has maintained consistent payments since 2021, its recent focus on capital-intensive projects—such as $83 billion in infrastructure investments through 2029—could strain cash flows.

4. Limited Upside in a High-Yield Environment

The stock’s premium to par ($25.28 vs. $25.00 liquidation preference) leaves little room for growth. With the Utilities sector average yield at 3.75%, DUK.PR.A’s 5.75% dividend remains compelling—but only if rates stabilize. In a rising-rate scenario, investors might find better opportunities in shorter-term instruments or higher-yielding alternatives like energy or financial preferred stocks.

The Bottom Line: Sell Before Risks Outweigh Rewards

While Duke Energy’s dividend reliability and strong financials (99 years of common stock payouts) are undeniable strengths, the risks inherent in DUK.PR.A’s structure now outweigh its benefits for many investors. Key data points reinforce this view:

• Interest Rate Sensitivity: A 1% increase in rates could reduce DUK.PR.A’s price by approximately 10% (based on its duration).
• Call Risk Probability: Duke’s shareholder-friendly strategy and need for capital flexibility make a 2025 redemption plausible.
• Opportunity Cost: High-yield bonds and short-term CDs now offer comparable returns with lower risk.

reveals that preferred dividends consume a smaller portion of earnings, but this could change as capital expenditures rise.

Conclusion

Duke Energy’s DUK.PR.A has served investors well, but the combination of interest rate exposure, call risk, and limited upside makes it a prime candidate for sale in 2025. While the 5.75% yield remains attractive, the stock’s sensitivity to macroeconomic headwinds and Duke’s strategic priorities suggest now is the time to lock in gains or avoid potential losses. Investors should consider reallocating proceeds to shorter-duration securities or sectors less vulnerable to rising rates.

As always, consult your financial advisor before making changes to your portfolio.

Data as of February 2025. Past performance does not guarantee future results.