Last update on 2024-06-27

Exelon (EXC) - Dividend Analysis (Final Score: 4/8)

Discover Exelon (EXC) dividend performance using an 8-criteria scoring system for sustainability and reliability analysis.

Short Analysis - Dividend Score: 4

We're running Exelon (EXC) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

Exelon (EXC) was evaluated based on eight criteria to analyze its dividend policy. It performed well in some areas while showing concerns in others. The company's dividend yield of 4.0111% is higher than the industry average, attracting income-focused investors. However, its average annual dividend growth rate over the past 20 years is inconsistent and hasn’t met the 5% threshold, indicating instability. The payout ratio is slightly above the ideal 65%, and in some years, it exceeded 100%, raising questions about sustainability. Earnings per share coverage has shown volatility, with the coverage ratio often below 1, straining earnings. Cash flow coverage of dividends has fluctuated significantly, with some years showing negative coverage, suggesting reliance on debt or reserves. On the positive side, Exelon has maintained stable dividends over the past 20 years without significant drops and has paid dividends for over 25 years, reflecting reliability. However, the history of stock repurchases is negligible, indicating a lack of focus on returning value through this method.

Insights for Value Investors Seeking Stable Income

Exelon's dividend yield and long-term payment history may appeal to income-focused investors, but the inconsistency in dividend growth and issues with payout and coverage ratios suggest caution. The company’s mixed performance in dividend sustainability may be a concern for long-term investors seeking stability. It could be worth looking into Exelon further, but potential investors should consider these volatility and coverage issues before making a decision.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend Yield indicates how much a company pays out in dividends each year relative to its stock price. A higher yield can attract income-focused investors.

Exelon's current dividend yield of 4.0111% is higher than the industry average of 3.75%. Historically, EXC's dividend yield has fluctuated, ranging from 2.1558% to 7.0612% over the past 20 years. The higher yield can be attractive for income-seeking investors. Comparing this with the industry, EXC traditionally stays competitive in payout. The rising yield is primarily due to a decrease in stock price rather than substantially increased dividends.

Average annual Growth Rate higher than 5% in the last 20 years?

The criterion examines whether the company's dividend growth rate has consistently surpassed 5% over a span of 20 years. This provides insight into the company's ability to generate increasing returns for its shareholders continuously.

The Dividend Per Share ratio values show extreme volatility in Exelon's dividend growth over the years, with significant variations ranging from as high as 30.7292% in 2004 to negative values like -30.7143% in 2013. With an average dividend ratio of around 3.44%, it's evident that Exelon's dividend growth hasn't consistently met the 5% threshold. This inconsistent growth trend is concerning as it reflects instability in dividend payouts, which may deter long-term income-focused investors. Moreover, the presence of multiple years with zero or negative dividend growth further underscores the unpredictability and suggests that Exelon may not be prioritizing steady dividend growth. Therefore, this trend is unfavorable for the criterion of a consistent 5% growth rate over 20 years.

Average annual Payout Ratio lower than 65% in the last 20 years?

Average Payout Ratio, which is the ratio of dividends paid out to shareholders relative to the company's net income, is a crucial metric. A ratio under 65% is typically seen as sustainable.

The average payout ratio for Exelon (EXC) over the past 20 years is approximately 68.66%, which is slightly above the ideal threshold of 65%. There have been significant fluctuations in individual years, with the ratio exceeding 100% in 2005, 2012, and 2017, indicating that the company paid out more in dividends than its net income in these years. Such instances could signal potential sustainability issues if not adequately managed. For example, in 2012, the payout ratio spiked to 148.26%, starkly higher than the desired range. While the trend in later years shows more control, averaging around 60% to 70%, the overall average still hints at periodic financial strain. This trend suggests that while EXC makes efforts to maintain dividend payments, they have occasionally overreached, which might not be ideal for long-term sustainability. Therefore, this trend is slightly unfavorable, although not critically alarming.

Dividends Well Covered by Earnings?

Earnings per share coverage of dividends

Earnings per share (EPS) over the years have shown volatility, ranging from a low of 1.2233 in 2016 to a high of 4.1344 in 2008. Dividends per share (DPS), on the other hand, have seen a gradual increase from 0.96 in 2003 to 1.44 in 2023. However, the critical metric is the proportion of dividends covered by earnings, depicted as varying ratios over 20 years. In several instances, nearly half of the annual earnings are allocated as dividends, demonstrating Exelon's commitment to delivering shareholder value but also putting pressure on its earnings. Notably, the coverage ratio has hovered below 1 consistently, except in a few years (2011, 2016), where the coverage exceeded (indicating lower dividends relative to earnings). While consistent payouts are favorable, falling coverage ratios imply potential risks to dividend sustainability, specifically in years of lower earnings. Thus, this trend is neither highly favorable nor exceptionally poor but signifies a balance between returning capital to shareholders and maintaining earnings resilience.

Dividends Well Covered by Cash Flow?

Dividend coverage by cash flow is critical because it assesses a company's ability to sustain its dividend payments from its organic cash-generating operations. This metric gives investors insight into the reliability of the dividend as a form of income.

Analyzing the provided data, Exelon's ability to cover dividends with free cash flow fluctuated significantly over the years. In 2003, the coverage ratio was around 0.43, indicating Exelon generated enough free cash flow to pay just 43% of its dividend payout, which is not favorable. By 2004, this ratio worsened to 0.34. However, in 2007, the ratio improved considerably to 0.65, showing a stronger cash flow situation relative to dividend payments. Notably, there were several years, particularly from 2015 onwards, where Exelon exhibited negative coverage ratios, such as -59.44 in 2005 and -11.88 in 2017, suggesting the company relied heavily on other sources, like debt or reserves, to fund its dividends. Such negative ratios raise red flags about the sustainability of dividend payments. The continued negative trend from 2015 to 2023, especially the alarming figure of -3.91 in 2020 and -0.302 in 2021, highlights significant strains. Overall, this trend indicates a concerning inability to cover dividend payments through free cash flow, portraying an unfavorable picture regarding dividend sustainability.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over the past 20 years indicate financial health and reliability of a company, which is crucial for income-seeking investors.

The historical data for Exelon (EXC) shows that there hasn't been a year where dividends per share fell by more than 20%. Specifically, the dividends per share values range from $0.96 in 2003 to $1.44 in 2023. This trend suggests stability and resilience. Although there were some fluctuations, none were severely detrimental, indicating a strong commitment to rewarding shareholders. Such a stable dividend payout history is favorable for income-seeking investors, reflecting the firm's solid financial standing and capacity to generate consistent returns.

Dividends Paid for Over 25 Years?

This criterion evaluates if Exelon has a consistent track record of paying dividends for over 25 years. Continuous dividend payments indicate financial stability and reliability.

Exelon has indeed paid dividends consistently over the past 25 years, as indicated by the figures provided. Starting from $0.5 per share in 1998, the dividends have seen various changes, peaking at $2.1 per share between 2008 and 2012. Although there was a decrease afterward, dividends remained stable and ranged from approximately $1.24 to $1.582 in recent years. This trend is positive in terms of Criterion 6, demonstrating that Exelon has a long-term commitment to returning value to its shareholders, which signifies financial strength and reliability. Shareholders can reasonably expect Exelon to continue its established pattern of dividend distributions.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases provide a signal that the company can create shareholder value and has a strategic financial plan.

Over the last 20 years, Exelon has shown a marginal tendency to repurchase shares, with a reliable repurchase occurring in only one year, 2008. In that year, the number of shares decreased from 676 million in 2007 to 662 million in 2008, indicating buybacks. However, since then, the number of shares has largely been on the rise, peaking at 996 million in 2023. The average repurchase over the period is negligible at 2.2068%, making this trend more concerning than beneficial. Hence, Exelon does not exhibit a robust or consistent strategy in share buybacks, potentially indicating a lack of focus on returning value to shareholders through this method.