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Author: CM001 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 220  
Subject: Re: Lowered 2012 Estimates Date: 7/7/2012 12:49 PM
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The dividend yield is reason enough to own this now and represents some upside when they announce the next dividend at around 5.6%. The widely misquoted 4% yield is - erroneously - holding the stock back to some degree

The company has 850 Million shares outstanding and $31.8 Billion Market Cap. So irrespective of what is quoted, folks know exactly what is the dividend and dividend rate.

The dividend yield is holding the stock for now, but the risks on this stock is not the upside but downside.

After their lucrative power contracts have expired EXC is not able to sign new contracts with attractive rates and given their current hedge program, i.e., 2012 fully hedged, 2013 at 70% and 2014 at close to 50%, there is not whole lot of upside until 2014, which is also reflected in the earnings estimate of $2.75 (give or take $.15).

There is no guarantee that NG prices are going to go up in 2014 and stay there. The NG prices can very well continue at these levels for some more time with occasional/ periodic spike and bust. Given EXC's hedging needs whether it will have the opportunity to take advantages of any temporary spike is not clear.

On the risk side, the $2.1 dividend rate means 76% payout ratio. Which is dangerously high and is at a risk of being cut.

The possible risks are:

1) dividend cut
2) not able to realize synergy costs (thus not able to delivery on EPS), which in turn results in dividend cut
3) some form of interest rate hike, which means dividends become less attractive, thus the share prices going down
4) PE compression. The shares can easily drift to low 30's. The only thing that is holding the price is dividends

In summary, I don't see any upside until 2014 and see potential risks. Of course the shares have relatively high dividend yield. But for me the higher yield doesn't compensate higher risks. I will step aside and wait for prices to go further low, or market corrections.
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