Income is a big part of investors' returns. Stocks, mutual funds and fixed income ideas in this column are featured because they are relatively solid in their ability to pay dividends or interest. We're giving income investors a resource to start their research for investments that give better yields with lower risk.

December 1, 2010 - Exelon Corp. (EXC-NYSE) a utility services holding company, through its subsidiaries, engages in the generation, transmission, distribution, and sale of electricity to residential, commercial, industrial, and wholesale customers in northern Illinois.

You may know this company by its largest division: Commonwealth Edison. Exelon is the holding company. In 2009, revenues came from residential (49%), small commercial and industrial (26%), large commercial and industrial (17%) and other (9%). Generation of that energy came from: nuclear (81%), other (6%) and purchased (13%). Fuel costs were 40% of revenues in 2009.

Earnings will be down this year to $4.00 if 18 analysts have their estimates correct. That's below the $4.12 the company reported last year. Next year, consensus projection is for $4.10 a share. But investors don't expect a lot of growth from this company. They're looking for the dividend.

That increased since 2002 when it was 88 cents a share to last year when the company sent $2.10 to each shareholder. This year will match last year's pay out of $2.10, giving the stock a current yield of 5.30%. Since the company has $2.74 billion in cash and an A rating for Financial Strength, it's most likely the dividend will continue at or above these levels for some time to come.

The company is moving ahead with its nuclear power expansion, looking to raise production by 1300 to 1500 megawatts by 2017. That'll cost about $3.8 billion. Other energy producing projects are being scrutinized, influenced by prices in the power markets. They won't be activated unless power prices start to rise.

The company asked its regulators for a hike in rates. In Illinois, its Commonwealth Edison division wants tariffs up by $396 million which would give the company an 11.5% return on common equity. The utility commission has countered with an increase of $78 million. Whatever the new rates, they'll go into effect in June of 2011. The PECO division in Pennsylvania finally reached settlement with those regulators, subject to final commission approval, which increase electric and gas rates of $225 million and $20 million respectively. They'll kick in at the beginning of next year.

Management bought more wind power recently, paying $860 million for 735 megawatts of wind capacity. There's another $40 million to pay if new projects are added. The company will borrow the money in the debt markets. That deal should contribute to earnings sometime in 2012 and be neutral until then.

More numbers: Market Cap is $26.07 billion. Trailing P/E is 9.97 while Forward P/E is 9.61. Price to book is 1.87. Book value is $21.10. Operating margin for the last 12 months was 26.65% while Profit margin was 14.34%. Return on equity was a remarkable 19.81% while Return on assets was 6.06%. Total cash is $2.74 billion for $4.14 Cash per share. Total debt is $12.90 billion. Debt to equity is .92. Current ratio is 1.7.
Beta is .57. In the last 52 weeks the stock is down 19.69%, mostly over the concern of lower power prices this year and next. There are 661.41 million shares outstanding. Institutions own 64.40% of the stock. Quarterly dividends are $ .525 for an annual payout of $2.10.

Income investors will like the yield here but need to remember that the chance for capital appreciation isn't great. That will only happen when power prices begin to rise which analysts believe will be in 2012. Patience is needed here. But the yield for waiting is attractive.

- Company Web site: www.exeloncorp.com

- Ted Allrich