Exelon Corporation (EXC): This Dividend Cut is Likely a Positive for Investors

Looking past uprates, Exelon is also investing in renewable energy to generate even more nuclear generation growth. One example is the company’s new 230-MW solar farm in California that First Solar, Inc. (NASDAQ:FSLR) is building. The $1.36 billion dollar project will include more than 3 million solar panels and will be operated by First Solar. The power has been contracted out to PG&E Corporation (NYSE:PCG) under a long-term contract.

These long-term power purchase agreements are important because they generate steady, predictable returns for the company. Not only that, but as Exelon CEO Christopher Crane noted: “[When] the balance sheet is tight like it is right now, you would want to make investments that have a short investment period … wind and other smaller assets really do fit that profile. Within a year, you’re getting a return.”

That’s likely why the company will continue spending a bulk of its growth capital on these quick-turnaround growth projects at the expense of its dividend. Essentially, management is saying that it believes it can earn its investors a greater return on their money by investing in these high-return, quick-payback projects than they could earn if the company kept up the payout. So, while no one likes to see a pay cut, this one shouldn’t scare you.

The article This Dividend Cut is Likely a Positive for Investors originally appeared on Fool.com and is written by Matt DiLallo.

Matt DiLallo has the following options: Short Apr 2013 $35 Puts on Exelon. The Motley Fool recommends Exelon.

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