Exelon Corporation (NYSE: EXC) is a company which produces and generates electricity, providing power to over 5.4 million customers in Illinois, Pennsylvania, and New Jersey. The company was formed after a 2000 merger between Unicom and PECO energy which paved the way for a larger, more powerful energy company to pick up the progress of the two smaller ones. The company trades for $39.44 as of January 29th, 2012, and it pays a $2.10 (5.30%) dividend, which can be considered fairly weak considering the company’s overall progress (or lack thereof) in the market this year. EXC is hovering just over its 52-week low and has suffered significant decreased in value throughout 2011.
Despite the company’s declined stock price over the past year, CEO John Rowe believes that the company enjoyed a successful, strong year overall. During the fourth quarter 2011 conference call on January 25th, 2012, Rowe explained that the company’s fourth quarter operating expenses were $0.82 per share despite a disappointing December, bringing the company’s total operating earnings per share to $4.16 per share (http://seekingalpha.com/article/322092-exelon-s-ceo-discusses-q4-2011-results-earnings-call-transcript). If nothing else, Exelon has no shortage of confidence: Rowe is firm in his belief that Exelon is in a strong financial position for the next year. In fact, as if anticipating criticism for the stock’s 5.30% dividend, Rowe addressed the $1.4 billion returned to shareholders via dividends in the past year.
“We are keenly aware that to all of you, the dividend is an absolutely critical part of our value proposition. It’s what makes it possible for you to hold on with us while we work our way through the gas and power price trough. Our cash flows and credit metrics support our dividend and capital programs even as we accept a higher payout ratio,” said Rowe. Mentioning gas prices was important for Rowe, as it is an uncontrollable factor that could help or hinder Exelon’s operating expenses in the future; after all, if gas prices are to climb indefinitely, then there’s no telling just how much the company could lose trying to support its energy costs. Exelon is confident that its high dividend will encourage investors to continue to contribute towards the company’s hopefully prosperous future; however, since the stock is struggling as of late, investors could draw the conclusion that the high dividend is a red flag for future losses.
During the conference call, Rowe also touched on the company’s response to power outages and major storms. Rowe explained that PECO faced “significant storms” throughout the year 2011, but PECO’s response was superior to any other Northeastern utility company’s. Furthermore, ComEd (a division of Exelon) had the best outage frequency statistics on record. These responsible, strong responses to blackouts and outages are definitely beneficial to the company’s reputation as well as its potential for more financial support, via investors, in the future.
The company also saw success by growing and making additions to its infrastructure. Rowe explained that Exelon Nuclear added 138 megawatts to their program during 2011, a move which provided more clean energy to the nuclear program. Additionally, the company added 230 megawatts of solar energy in 2011 with the acquisition of the Antelope Valley Solar Ranch, a move which shows Exelon’s strong commitment to providing safe, clean, and environmentally-friendly energy to its customers.
Exelon faces competition from a number of other energy companies. One such company is Duke Energy Corporation (NYSE: DUK) which currently operates a market capitalization approximately $6 billion greater than Exelon’s and has enjoyed a gradual increase in stock value during 2011. In fact, Duke has even been listed as a high-dividend, low-risk stock: while maintaining an approximately 4.70% dividend yield, Duke has managed to stay fairly stable during the year (http://seekingalpha.com/article/321794-15-high-dividend-low-risk-large-cap-stocks). Exelon, however, while paying a slightly larger dividend, cannot say it has been as stable as Duke. Additionally, American Power Electric Company (NYSE: AEP) has experienced a gradual rise in stock value over the past year, finishing 2011 with a 52-week high before slightly dipping in price; however, as of January 29th, 2012, the company is still in the green as far as share prices go. AEP also pays a 4.70% dividend, making it a more attractive offer than Exelon because of its stability and dividend yield.
In conclusion, Exelon is a bit of a risky investment. While it could be a great long-term investment due to the company’s clean energy initiatives, its short-term performance leaves much to be desired. Though it pays a good dividend, the company’s stock price is just too volatile to be considered a safe investment.