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Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, Exelon Corporation (NYSE:EXC) has been paying a dividend to shareholders. Today it yields 3.0%. Should it have a place in your portfolio? Let’s take a look at Exelon in more detail.
5 questions to ask before buying a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is it the top 25% annual dividend yield payer?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has it increased its dividend per share amount over the past?
- Is is able to pay the current rate of dividends from its earnings?
- Will it have the ability to keep paying its dividends going forward?
How does Exelon fare?
Exelon has a trailing twelve-month payout ratio of 66%, which means that the dividend is covered by earnings. However, going forward, analysts expect EXC’s payout to fall to 50% of its earnings. Assuming a constant share price, this equates to a dividend yield of 3.2%. However, EPS should increase to $3.16, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Dividend payments from Exelon have been volatile in the past 10 years, with some years experiencing significant drops of over 25%. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves.
Compared to its peers, Exelon has a yield of 3.0%, which is on the low-side for Electric Utilities stocks.
If you are building an income portfolio, then Exelon is a complicated choice since it has some positive aspects as well as negative ones. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. I’ve put together three key factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for EXC’s future growth? Take a look at our free research report of analyst consensus for EXC’s outlook.
- Valuation: What is EXC worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether EXC is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.