What’s a dead dividend worth?
Exelon’s hinted for a while that its sizable dividend might get a haircut, so this most recent announcement should come as no surprise to investors. Although dividend investors will be sad to see its current 6.8% yield disappear, the company’s current share price still puts its diminished yield at 4%, on par with the industry average.
Even without the haircut, Exelon’s cash puts it in a better (albeit still unsustainable) position than most to deliver dividends.
| Company | Dividend Yield | Cash Dividend Payout Ratio TTM |
|---|---|---|
| Atlantic Power Corp(NYSE:AT) | 9.6% | (54%) |
| Exelon | 7.1% | 123% |
| FirstEnergy Corp. (NYSE:FE) | 5.3% | (1,770%) |
| Duke Energy Corp (NYSE:DUK) | 4.7% | (252%) |
| The Southern Company (NYSE:SO) | 4.5% | 855% |
| Consolidated Edison, Inc. (NYSE:ED) | 4.3% | 163% |
| Dominion Resources, Inc. (NYSE:D) | 4.1% | (1,769%) |
| National Grid plc (NYSE:NGG) | 4% | 163% |
| NextEra Energy, Inc. (NYSE:NEE) | 3.3% | (27%) |
Source: Yahoo! Finance
With Exelon’s big plans for renewables, nuclear, and smart grid technology, a penny saved is a penny more that can be allocated toward capital expenditures. Currently, Exelon spends 21% of its sales on self-investment, but that number could move much higher if the utility takes its growth prospects seriously.
| Company | Capex ($M) | Capex-to-Sales Ratio (%) |
|---|---|---|
| Consolidated Edison | 1,967 | 0.16 |
| Atlantic Power | 115 | 3.56 |
| FirstEnergy | 2,278 | 0.14 |
| Exelon | 4,042 | 0.21 |
| Duke Energy | 4,363 | 0.30 |
Source: Yahoo! Finance
According to Cane:
We [Exelon] have an opportunity to invest in growth. We cannot do that efficiently if we’re leaning on a balance sheet to maintain an 80% to 90% payout level. We are acting now to right-size our dividend to be more aligned with the commodity sensitive nature of our business. After assuring that we have had a strong balance sheet and credit metrics, we’ll renew our focus on investing in future growth to enhance long-term shareholder value.
Foolish bottom line
Exelon’s stock is down 22% in the last year, and its sector-average price tag isn’t accounting for some of the big upside potential this utility could begin to see in the next few years. For long-term investors, an oversized dividend is dead weight, and Exelon just freed itself from the bonds of short-term shareholders. I’ve made an “outperform” call on my Motley Fool Caps page, and am looking forward to seeing just how much Exelon excels in the coming years.
The article Exelon Earnings: A Dying Dividend Delivers Growth originally appeared on Fool.com and is written by Justin Loiseau.
Fool contributor Justin Loiseau has no position in any stocks mentioned, but he does use electricity. You can follow him on Twitter, @TMFJLo, and on Motley Fool CAPS, @TMFJLo. The Motley Fool recommends Dominion Resources, Exelon, National Grid plc (NYSE:NGG) (ADR), and Southern Company.
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