Dividend WatchStill, Tucker believes Duke will postpone cutting the dividend until it has no other choice -- something he believes will finally come to pass in a year or so. Duke says that its "current business plans for 2003 fully support the dividend at this level." In the meantime, Tucker expects new stock offerings to shave 2003 and 2004 earnings by 7 cents and 14 cents, respectively.
Duke stock in 2003
The company, which topped expectations Wednesday with first-quarter profits of 43 cents, has promised to deliver full-year earnings of $1.35 to $1.60 a share. For now, Tucker believes Duke can hit that target, though he's bearish on the company overall. Tucker penned his recent downgrade just before Duke announced plans for its convertible offering, which one short-seller labeled inadequate and even "absurd." The short-seller pointed out that Duke is essentially issuing new debt "with very little equity" because the senior notes cannot convert to stock unless Duke shares jump to $24 -- a level unseen since last August. He says Duke is using new debt to refinance old debt and fund operations so free cash flow can pay the dividend and prop up Duke Capital. But in the end, he says, Duke's dividend is vulnerable -- and Duke Capital's credit rating is even more so. Tucker agrees. He sees no justification for Duke Capital's investment-grade rating and points out that a downgrade to junk will hurt the parent company as well. He warns that potential credit downgrades -- which he views as likely -- will reduce the company's access to short-term debt by roughly $800 million and trigger another $400 million worth of collateral calls.