Some seemingly disappointing news for Edison International shareholders now has investors cheering.
Shareholders of the Rosemead utility giant found out last month that they’ll likely have to bear a bit more of the multibillion-dollar cost of shutting down the San Onofre nuclear power plant than they initially expected – not what they were hoping for.
But analysts and investors nevertheless have a rosy outlook for the company. That’s because, with a final San Onofre deal likely wrapping up this month, it looks like Edison management will be freed up to address a more fundamental concern for investors: the company’s lagging dividend payout.
Edison’s dividend payout ratio of 33 percent of earnings is low by industry standards – about half the average payout among utilities. Since utility companies traditionally have strong dividends, that’s been a major sore point for investors.
But investors have been anticipating for some time that Edison would boost its dividend, helping driving the company’s share price skyward. Throughout October, the stock repeatedly pushed 52-week highs, closing Oct. 30 at $62.56.
Edison’s last quarterly cash dividend was 35.5 cents a share.
Edison Chief Executive Theodore Craver confirmed investors’ expectations on a conference call last week after the company’s latest earnings announcement.
“Boosting the dividend growth has been a very important factor behind the stock price run-up,” said Ali Agha, managing director of equity research for SunTrust Robinson Humphrey of Atlanta. “The unresolved issue of paying for the San Onofre closure was a big reason why Edison has not been able to grow the dividend.”
The holdup for a San Onofre settlement has been how the $4.7 billion cost of closing the plant would be split between Southern California Edison utility ratepayers and Edison shareholders. The nuclear plant was taken off line in January 2012 after a leak in a steam generator tube led to findings that thousands of generator tubes were wearing out faster than planned. The steam generators, manufactured by Mitsubishi Heavy Industries of Tokyo, had just recently been installed.
SCE had to spend millions of dollars to procure replacement power and make fixes to its transmission grid. Then it announced in June of last year that the nuclear power plant would be shut down permanently, at a cost of $4.7 billion over 10 years. The next month, SCE filed a lawsuit against Mitsubishi, claiming that the generators were defective.
The California Public Utilities Commission earlier this year proposed ratepayers be on the hook for $3.3 billion and shareholders $1.4 billion. But consumer groups complained, saying ratepayers should not be held responsible for flaws in the steam generators.
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