Milwaukee-based Wisconsin Energy Corporation (WEC) has announced the revision of its dividend policy for 2011 and beyond, as decided at a regular meeting of the company’s directors.
Wisconsin Energy’s newly adopted policy targets a dividend payout ratio in the range of 50% to 55% of earnings in 2011 and subsequent years. The revised payout target is substantially above the company’s previous target range of 40%-45% of earnings for 2011 and 45%-50% of earnings for 2012.
The quarterly dividend rate consistent with the new policy is yet to be announced. Wisconsin Energy estimates the declaration of the new quarterly rate to come in January 2011. Wisconsin Energy currently pays a quarterly dividend of 40 cents per share, which sums to an annualized dividend of $1.60 per share.
Nevertheless, Wisconsin Energy projects payouts to be near the bottom-end of the new target range for the next couple of years due tothe already planned capital expenditures for 2011 and 2012. In the next two years, the company plans to spend a major part of its capital towards renewable energy projects, environmental improvements and distribution network renewal.
Though the payout performance is going to be weak in the next two years, Wisconsin Energy believes its dividend payout ratio is bound to increase beyond 2012 with the completion of the decade-long Power the Future Plan and its planned $500 to $600 million per year capital spending post 2012.
Furthermore, Wisconsin Energy’s new policy is consistent with its key financial goals of maintaining a strong ‘A’ category credit ratings at its utilities and funding new investment opportunities without issuing additional shares of common stock.
Wisconsin Energy has managed its balance sheet very effectively during the construction of the new generating units. As these units enter commercial operation, they add earnings and cash flow that will support balance sheet improvement and fund planned capital expenditures.
At the close of the most recent quarter, Wisconsin Energy’s cash flow from operating activities totaled $653.7 million, with capital expenditures of roughly $545.6 million. The company’s liquidity at quarter-end also remained strong with $11.2 million of cash and $1.6 billion of available credit facilities.
In all, we believe Wisconsin Energy is well positioned to benefit from its strong and highly-visible near-term growth outlook, constructive regulatory environment and a solid financial position, which does not need new equity in the foreseeable future. This along with the company’s new dividend policy is going to attract investor attention, in our view.
Wisconsin Energy is a diversified energy company engaged in generation and distribution of electricity in the southeastern, east central, and northern Wisconsin, as well as Michigan. The company also distributes natural gas; and owns, develops, and operates hydro, coal, nuclear, and wind electricity generating facilities, as well as invests in other energy-related entities. It also develops and invests in real estate.
Wisconsin Energy currently has a short term Zacks #3 Rank (Hold). The primary competitors of Wisconsin Energy are Progress Energy Inc. (PGN) and Xcel Energy Inc. (XEL), who also hold the same rank.
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