Exelon (EXC) Announces Dividend Cut

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It finally happened. Exelon Corporation (EXC) announced a dividend cut that will become effective in Q2 2013. The quarterly dividend has been slashed from $0.525 to $0.31, a decrease of 41%.

I was a former shareholder of EXC, but recently exited out of my position in mid January. Although I no longer have any stake in the company, it still pains me to see this news.

The market reaction was somewhat of a surprise to me. The stock price actually increased after the bad news was announced last week. I’m guessing investors took the news as “positive”, since analysts were expecting an even larger dividend cut. EXC shares are currently trading at $31.08, compared to $28.40, which was the low reached after the Q3 earnings report. After Q3 earnings, investors started heavily speculating that a dividend cut might be imminent in the future.

I previously told myself that if I decided to exit out of EXC, I would do so before an official dividend cut was announced by management. I was certain any more bad news would completely tank the stock. However, this time around, it seems the bad news was really already baked into the stock price! I haven’t been investing in stocks long enough to recall another instance of something like this happening… This is an interesting datapoint for me, moving forward.

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Exelon Corp.: Avoid This Utility Stock In 2014IntegratorDividend MantraFI FighterBrick By Brick Investing | Marvin Recent comment authors
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S. B.
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I remember evaluating EXC a number of months ago when I felt I should have at least some money in the utility sector. I read a lot of arguments, pro and con, but it the end, I did not feel comfortable with the company. It was just a gut feeling. I went with SO instead, which I see you also have. NEE is another great utility company, but it’s way too high right now for my taste.

Executioner
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Markets like certainty. The announcement added some certainty to the dividend situation. There were likely some who thought the dividend would be cut further, so since the news was not as bad as it could have been, likely we saw some short sellers heading for the exits at that point. EXC seems to be showing that it is willing to make an unpopular short-term decision in order to make their company stronger for the long run. I think it’s likely a better investment now than it was last year when they were paying unsustainably high dividends.

Compounding Income
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41% is brutal, ouch! I never seriously looked at EXC since the dividend was stationary for so long. If all I wanted was a 6% yield with no increase, I’d normally look for something higher in the capital structure such as preferreds or bonds.

SO should be a good utility. In the recent conference call they reaffirmed their commitment to dividend increases. We should expect 3-4% or so raises. AVA recently announced a 5% increase and UNS should announce one later this month.

Brick By Brick Investing | Marvin
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I was stopped out of this stock as well. It seems as if this stock’s run has ended. What I would have done to own it 5 years ago and enjoy the ride. This is why I stick to my trailing stops no matter what because sometimes emotions get the best of us.

Dividend Mantra
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FI Fighter, I looked at EXC a little while back when it was all the rage over on Seeking Alpha. I honestly couldn’t figure it out, so I stayed away. I guess I’m glad I did. We don’t always miss mines like this, but it feels good when we do. There’s only a few utilities I like, as they typically have low dividend growth. I’m long on AVA and UNS, but SO is also good. SO is one I’d like to own at some point. D is one I follow as well. I think keeping utilities to 5% or so… Read more »

Integrator
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I looked at the historical financials for this stock, and frankly they didn’t look so bad. I can only surmise that 2012 was a terrible year for the company. The payout ratio for the company was only 56% in 2011. While revenue hadn’t really grown for 5 years, I would have been cautious but not seen the full extent of the cut coming.

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[…] a toll on the stock price. The balance sheet concerns have faded away, as EXC addressed them by cutting dividends. Now low natural gas prices and weak forward power prices remain headwinds for the company, which I […]

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