Tags: FirstEnergy | Dividend | Power | Prices

FirstEnergy Slashes Dividend as Power Prices Fall

Tuesday, 21 Jan 2014 06:22 PM

FirstEnergy Corp., the worst performer in the Standard & Poor’s 500 Utilities Index last year, cut its dividend for the first time as lower power prices and falling sales erode profits.

The quarterly payment decreased 35 percent to 36 cents a share and will be made March 1 to shareholders of record on Feb. 7, according to a statement today from the Akron, Ohio-based company. The previous 55-cent quarterly dividend had been in place since 2008

“The cut is not quite as large as I would have expected,” said Kit Konolige, a New York-based analyst for BGC Partners LP. Konolige, who rates FirstEnergy a hold and doesn’t own their shares, was anticipating a 40 percent reduction in the dividend.

Tuesday’s cut, the first in the 17-year history of the company, is the second by a large U.S. utility owner in the past 11 months. Chicago-based Exelon Corp. chopped its dividend 41 percent in February to maintain its investment-grade rating and free cash to fund growth.

FirstEnergy fell 1.7 percent after the close of regular trading in New York after declining 1.4 percent to $32.15 today.

Earnings Forecasts

FirstEnergy said operating earnings for 2014 would be $2.45 a share to $2.85 a share. The $2.65 midpoint is 17 cents less than the $2.82 average of 21 analysts’ estimates compiled by Bloomberg. The company narrowed its 2013 operating earnings forecast to $2.95 a share to $3.05 a share, from $2.90 to $3.10.

The reduced dividend will provide “additional financial flexibility to pursue regulated growth opportunities over the next several years,” FirstEnergy Chief Executive Officer Anthony Alexander said in the statement.

A 30 percent cut in FirstEnergy’s dividend would save it from having to issue $300 million a year in stock to pay for transmission-line system expansions, Julien Dumoulin-Smith, a New York-based analyst for UBS AG, said in a Jan. 17 note to clients. FirstEnergy has sold power plants and reduced spending by $1 billion as it focuses on regulated assets, like transmission, that offer a more reliable return than generation units that sell electricity into wholesale markets.

Power prices in mid-Atlantic markets dropped 45 percent to average $45.95 a megawatt-hour last year from $84.17 in 2008, driven down as the cost of natural gas has fallen. FirstEnergy’s electricity revenue declined 7.3 percent last year to $9.64 billion.

The company, which supplies power to 6 million customers in six states, was expected to reduce the dividend to 37 cents, according to data compiled by Bloomberg. FirstEnergy was formed by the merger of Ohio Edison Co. and Centerior Energy Corp. in 1997.

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FirstEnergy Corp., the worst performer in the Standard & Poor's 500 Utilities Index last year, cut its dividend for the first time as lower power prices and falling sales erode profits.
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2014-22-21
Tuesday, 21 Jan 2014 06:22 PM
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