Despite its dividend cut, Exelon Corporation (NYSE:EXC) is well-positioned for the future of energy
As the nation moves increasingly toward clean energy, Exelon is perfectly positioned to capitalize. Not only does the company have the largest nuclear fleet in North America, but its investing to grow its wind and solar portfolio. Combine this strength with EXC’s recent merger with Constellation, and it places Exelon on a short list of top utilities. To determine if Exelon is a good long-term fit for your portfolio, you’re invited to check out The Motley Fool’s premium research report on the company. Simply click here now for instant access.
Well, at least the company can say you were warned. Exelon finally ended months of speculation and announced that it will be cutting its dividend. Starting in the second quarter it’ll be going from the current rate of $0.525 per share to $0.31 per share.
As a soon-to-be investor in Exelon I’m not exactly thrilled by the cut; I was looking forward to that nice chunk of quarterly cash flow. What’s important to understand, though, is the reason behind the cut and if it makes sense. For Exelon, the idea behind the 41% haircut is so that it can maintain its investment grade credit rating, and invest the cash in growth projects. I can certainly understand the company wanting to maintain its credit rating. My question is: How does the company plan to grow?
As investors know well, Exelon owns the nation’s largest fleet of nuclear power plants. However, given the shear cost involved to build a new plant, as well navigate the difficult regulatory environment, the company won’t be building a new unit any time soon. Instead, the company is investing in nuclear uprates to grow its nuclear generation. This entails investing in the components necessary to increase the generating power of a reactor.
These are lower-risk, higher-return investments for the company. When executed across its portfolio, the uprates will increase Exelon’s generation capacity to an output equivalent of adding a new unit. Even better, the uprates will be accomplished at a substantially reduced cost.
Exelon is not alone in using uprates to grow its nuclear capacity. Fellow clean energy generator, NextEra Energy, Inc. (NYSE:NEE) is investing $1.5 billion on its own uprate program to add 400 MW of nuclear capacity. The company had filed to build two new 1,100-MW nuclear reactors, but no decision on the reactors is likely until 2014, for the $12 billion-$18 billion project is not likely to enter into service until at least 2022. As you can see, uprates have quite the return on investment.