Portfolio Update: New Addition (EXC; September 5, 2012)

by FI Fighter on September 5, 2012

in Stock Portfolio Updates

It has been a few months since I made any new purchases, since I feel the market is a bit overvalued at the moment. Still, I used today as an opportunity to add more shares of Exelon Corporation (EXC). EXC is now sitting at its 52 week low. I added 56 shares at $35.89/share. I now own 124.817 shares. At a current payout of 0.525 per quarter, this will add $262.12/year in passive income.

Exelon is currently the only utility in my portfolio. In the future, I would like to diversify and add more companies in this sector. EXC currently plays a rather unique role in the portfolio. In general, I’m a believer of investing in large cap, blue chip companies that not only have potential to appreciate in share price, but also have a history of growing their dividend. EXC has not increased its dividend the past few years, and the share price has been decreasing.

So, what is the motivation for investing in such a company?  The most obvious answer would be the high yielding dividend. At present, EXC is yielding close to 6%. This is an incredibly high yield, even for a utility company. Secondly, I am betting on this entry point as being one that represents a value play. EXC is beat up at the moment, and the share price may stay depressed for the next few years. However, we could be close to the bottom as well. Should the merger with Constellation prove successful (historically, most utility mergers are), and natural gas/energy generation prices rebound from historic lows, the long term outlook is promising.

A benefit of having a well diversified portfolio is gaining the luxury to alter and fine-tune the gameplan a bit. More specifically, not every holding needs to meet the criteria of “having increased the dividend for x amount of years, at a rate of x%”. In some cases, I’ll take a “calculated” risk and invest in some underdog companies. As long as the fundamentals remain sound, the dividend doesn’t get cut, and there continues to be strong demand for the end product, I’ll remain patient. I’m in this for the long haul, so time is on my side. I’ll gladly collect the 6% dividend as I wait for things to turnaround.

***Update***: Added an additional 25 shares of EXC at $34.58/share on September 12, 2012. Limit order was set for $2000, but was only partially filled.

 

{ 2 comments… read them below or add one }

1 Compounding IncomeNo Gravatar September 6, 2012 at 2:04 am

I agree with you on many points. I feel it’s okay to take some calculated risks when the majority of the portfolio are a bunch of blue chip dividend champions. Some of the more speculative moves might not work out, but that’s okay. We don’t have to be right every time.

When you have a high yielder paying something like 5+%, dividend growth isn’t as important. Not only that but do you think EXC will freeze it’s dividend forever? It has the potential for future raises since it is common stock and has raised it many times in the past. I’ve dabbled a bit in preferred stocks and other fixed income where there is truly no chance of future dividend growth. The question for EXC is whether they can maintain the current payout. At a quick glance (I’m not very familiar with EXC) it looks sustainable.

CI

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2 FI FighterNo Gravatar September 12, 2012 at 11:15 pm

CI,

Yes, in some regards I’m taking a gamble on EXC. Who knows, it may or may not pay off. I’m betting it will. It isn’t the first, and won’t be the last stock I take a flyer on either. I have a plan / list of companies I want to make core holdings, so the overall strategy remains the same. I think having a plan in place is the most important thing; that way each holding has an identified purpose in the portfolio.

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