There's a Catch With Exelon’s 5.8% Dividend Yield
Exelon’s (EXC) earnings have been plunging. Last quarter net income fell 54% to $289 million. Net income was down 62% in the first half of the year. Much of that stems from its merger with Constellation Energy, as Exelon says that net income was $522 million excluding costs assigned with the merger.
But even before the profit plunge, Exelon was trading at a discount to other energy providers like Charlotte-based Duke (DUK), Virginia-based Dominion Resources (D), and Atlanta-based Southern Company (SO).
And it has a higher dividend yield.
So what’s the catch? Exelon is being hammered on several fronts, one being natural gas. The glut and downward spiral of natural gas is in its fourth year.
As this earlier YCharts story pointed out, it had protected itself with extensive hedges, but those were due to run out this year.
Moreover, the financial crisis and Great Recession has made non-economic initiatives, such as lower greenhouse gases, lower priorities. The Obama administration did push through greenhouse gas limits, which were upheld by a federal appeals court in June and would affect new coal-fired power plants. But in the Presidential campaign, Obama is focusing far more on jobs than the environment. For his part, Mitt Romney has said he wants to “strip the EPA of its authority to regulate carbon dioxide,” reports the Wall Street Journal.
And it doesn’t help that nuclear power took a global blow last year after the Fukushima reactor accident in Japan, where that government now is making efforts to reduce its reliance on nuclear power.
In the long run, the U.S. seems unlikely to phase out nuclear power, and presumably the natural gas glut would ease. But in the nearer term, Exelon is generating cash.
But its payout ratio is high and rising.
It still gets strong marks from YCharts Pro, but in the next few years, something – the dividend? - may have to give.