One of the Last Remaining Dividend Stock Bargains

The verdict is in: Federal Reserve Chairman Ben Bernankes first press
conference was a success. How do we know? Well, stocks flew up again yesterday,
with the Dow and the broader S& Poors 500 both closing at fresh highs for the
25-month-old bull market. Isnt that all that matters anymore? By Wall Streets
lights, yes. And Ill be the first to admit, it sure feels better to see my
brokerage balances expanding rather than shrinking. For those of us who care
about the prices we pay, though, the markets steep climb since mid-March makes
it a lot more difficult to find good places to park new money. At yesterdays
close, the dividend yield on the S&P 500 had shriveled to 1.88%. Thats not
fatally meager (yet), but were getting close. Last April, just before stocks
nosedived into early summer, the S&P yield sank to 1.82%. The low yield at the
October 2007 market peak was 1.76%. So theres some room for the market to
appreciate from here before we reach nosebleed territory. With every upside
stab, though, the risk of a serious reversal increases. To preserve our wealth
and keep it growing, we need to focus on value more intently than ever.
Fortunately, even in a market nearly devoid of bargains, Im still spotting a
few. Today, electric utility Exelon (NYSE: EXC ) announced a takeover bid for
Constellation Energy (NYSE: CEG ), parent of Baltimore Gas & Electric. The
pricing for this dividend stock looks reasonable at only about 6.5 times cash
flow (enterprise value to EBITDA). I generally consider any price tag below 7.5
times to be acceptable (from the acquirers standpoint) for an electric utility.
Moreover, Baltimore G&Es large retail distribution business will help lower the
percentage of EXCs earnings derived from the more volatile wholesale generating
business (sales of electricity to other utilities). Im pleased enough with the
deal to reinstate my buy rating on EXC. I had previously moved EXC to a hold in
the wake of the Fukushima disaster, but it now appears that Japans nuke woes
will have only a limited impact on the U.S. nuclear industry. Pay up to $43 for
this dividend stock, which currently yields 5% (and the Constellation merger
will likely bolster the safety of the dividend).