By Robert Hauver
Excelon, (EXC), is one of many dividend paying stocks in the Diversified Utility stocks sub-group, but what sets EXC apart from its peers are its abundant superior management, valuation and growth metrics, in addition to its wide moat within the reemerging nuclear energy production arena. Exelon delivers electricity to approximately 5.4 million customers in northern Illinois via ComEd and southeastern Pennsylvania via PECO, as well as natural gas to 486,000 customers in the Philadelphia area via PECO. (EXC is listed in the Utilities section of our High Dividend Stocks by Sector tables).
With the BP Gulf disaster in the news every day, proven alternative energy sources are looking more attractive than ever. In a recent forum, Excelon CEO John Rowe called for the Senate to pass the pending energy bill that would put a price on carbon emissions, stating, “As the nation’s largest nuclear operator, Excelon also appreciates that the senators have recognized nuclear power as a low-emission source of baseload electricity, with an important role to play in the country’s transition to a low-carbon economy”.
As the lowest carbon emitter in the industry, Excelon stands to benefit from carbon cap and trade legislation. EXC also created a new subsidiary in 2009, Excelon Transmission Co., which benefits from the expertise of former Federal Energy Regulatory Commission, (FERC) member Betsy Moler, EXC’s VP of Gov’t Affairs and Public Policy. Excelon’s website says that Ms. Moler led the FERC “landmark efforts on open access and promoting competitive markets”. The subsidiary will focus on ways to capitalize on the expected $60 – $100 billion US investment in transmission over the next 10 years, such as moving “renewable energy from the upper midwest and the Dakotas to population centers”, mitigating oversupply, improving reliability, and reducing congestion. (Source: Excelon website).
EXC’s two other divisions, ComEd and PECO, “will make up to $725 million in “smart grid” investments in Illinois and PA over the coming years”, and should give EXC a “regulated return on investment and stable earnings growth”. PECO has already been awarded the maximum allowable grant of $200 million by the US Dept. of Energy for their current smart grid project in Philadelphia.
PECO has also filed for approvals to increase its annual electric and natural gas delivery revenues by $316 million and $44 million, respectively, beginning January 1, 2011.
Here are the figures of our Industry Comparison:
||Diversified Utilities Group
|Long-term EPS Growth
Excelon currently has a 50.58% dividend payout ratio, and pays a $.525/share dividend quarterly. Their most recent ex-dividend date was May 12th, with a payout date of June 9th.
There are also options available for Excelon. Our Covered Calls table currently lists the Jan. 2011 $40.00 call, which nets $2.25/share in call option premium and $1.05 in dividends. At Friday’s $38.74 price, your static/unassigned yield would be 8%. The break-even is $35.44. If EXC rises to around $42.30 or higher, your underlying shares will most likely be assigned, giving you an additional $1.26/share profit, or 3%. The total assigned yield would be 11% for just under 8 months, or 17.7% annualized.
Investors looking for a lower entry point could sell cash-secured put options, and get a $34.40 break-even. The Jan. 2011 $37.50 put was bid at $3.10 today, which equals an 8% nominal yield, or 12.89% annualized.
Disclosure: No positions in EXC at this time.
Disclaimer: This article is written for informational purposes only.