Exelon’s (EXC) dividend growth has been quite concerning for investors for the past few years. Although it offers a modest dividend yield of 3.5%—similar to the utility average—its dividend growth over the past five years has fallen 9.6%.
By comparison, utilities’ (XLU) average per-share dividends have risen 4.2%, compounded annually, during the same period.
In the chart above, we can see Exelon’s yield falling from nearly 7% in 1Q13 to 3.5% right now. The primary reason for the decline is that it cut down its quarterly per-share dividend from $0.53 per share to $0.31 per share in 2013.
At the same time, Exelon’s peer FirstEnergy (FE) is trading at a dividend yield of 4.5%—one of the highest yields in the sector. FirstEnergy also trimmed its per-share dividend from $0.55 in 4Q13 to $0.36 in 1Q14.
Cash retention turned out to be a necessity for competitive utilities, which led to the dividend cuts. Weaker power demand growth and falling wholesale power prices have severely dented competitive utilities’ performances over the past few years.
By comparison, regulated utility giants Southern Company (SO) and Duke Energy (DUK) offer dividend yields of 4.6% and 4.2%, respectively. Regulated utility stocks like these often appear more stable from a dividend perspective, primarily due to their stable and predictable earnings. (See Market Realist’s Sector Scan: The 10 Top-Yielding SPX Utility Stocks.)
Exelon’s payout ratio—a ratio that shows the percentage of profits distributed as dividends among shareholders—came in at 103% in 2016 and shows that Exelon distributed dividends from its reserves more than the profits earned during that period.
You can read about one of the best dividend profiles in the sector in Market Realist’s series NextEra Energy’s Dividend Profile Is Smart despite Lower Yield.