Consolidated Edison (ED) raises dividend and offers investors a very low risk profile.

Consolidated Edison’s (NYSE:ED) dividend was increased by a solid 3%. Its overall yield is 3.67%.  Consolidated Edison engages in regulated electric, gas, and steam delivery businesses in the United States. The New York utility company provides natural gas and electricity to customers throughout New York, Pennsylvania, and New Jersey. Its primary market is New York City. Utility revenue accounts for nearly 90% of Consolidated Edison’s financial results. The firm provides electric services to over 3 million customers in New York City and Westchester County.  Consolidated Edison was founded New York City in 1884.

Consolidated Edison has maintained a solid three-year growth rate of dividends of 2.9 percent. Consolidated Edison currently ranks 3rd in yield within the large cap diversified utility category. The quarterly dividend for the March payment will be $0.69 versus the prior year rate of $0.67 per share. Consolidated Edison Inc. is a member of our Top 100 Dividend Stock List (see below).

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The dividend will be paid at the new higher rate on March 15, 2017, to shareholders of record at close of business on February 15, 2017. Consolidated Edison is currently priced at $73.08. Listed in the table below are the quarterly dividend payments since 2010.

Date Quarterly Dividend
2/15/2017 0.69
11/14/2016 0.67
8/15/2016 0.67
5/16/2016 0.67
2/12/2016 0.67
11/16/2015 0.65
8/17/2015 0.65
5/18/2015 0.65
2/13/2015 0.65
11/7/2014 0.63
8/11/2014 0.63
2/10/2014 0.63
11/8/2013 0.615
8/12/2013 0.615
5/13/2013 0.615
2/11/2013 0.615
11/9/2012 0.605
8/13/2012 0.605
5/14/2012 0.605
2/13/2012 0.605
11/14/2011 0.6
8/15/2011 0.6
5/16/2011 0.6
2/14/2011 0.6
11/15/2010 0.595
8/16/2010 0.595
5/10/2010 0.595
2/12/2010 0.595


Quantitative
 Analysis:

We examine Consolidated Edison upon our five key criteria, which include; 

Category Value Score
Dividend Yield 3.67% 72
Dividend Growth (3 to 6 year avg) 2.44% 353
Forward P/E 17.58 152
S&P Financial Rating A- 120
Beta  0.55 25
Total Score   722

Additional quantitative information on P/S ratio and historical yield;

% Yield 3 Year Div. Growth Rate 6 Year Div. Growth Rate SPS 2016 P/S Ratio 10 yr P/S Low 10 yr P/S High 5 yr lowest Yield % 5 yr max Yield %
3.67% 2.89% 1.99% 40.35 1.81 0.85 1.93 3.23% 4.69%

Positives;

  • Consolidated Edison maintains an investment grade credit rating.
  • Consolidated Edison has maintained a three-year growth rate of dividends of 2.89 percent.
  • Consolidated Edison’s dividend yield is above that of the S&P 500 Index.
  • Consolidated Edison maintains a beta of 0.55, much lower than the average company.

Negative;

  • Consolidated Edison’s current dividend yield (3.67%) is below its five-year average of 3.96%.
  • Consolidated Edison is trading at the top of its ten-year average price/sales (P/S) ratio.

Latest Earnings & Overall Analysis:

Consolidated Edison issued its earnings data on November 3rd. The company reported $1.50 earnings per share for the quarter, topping the consensus estimate of $1.49 by $0.01. Consolidated Edison maintains a solid return on equity of 8.9%  Consolidated Edison reported total revenue of $3,417 million in Q3, which fell slightly short of analyst estimates of $3,565 million.  Revenues were also down nearly 1% on a year over year basis.

In regard to a breakdown of the Q3 results, electric revenues came in at $2,769 million in Q3 while gas revenues rose by nearly 1% to $235 million. There was a large improvement in steam revenues, which rose by an impressive 8.6% to $63 million.  Non-utility revenues were $350 million.  For future guidance, the utility firm narrowed its full 2016 earnings guidance to $3.90-$4.00 per share from the previous range of $3.85-$4.05 per share. This was in line of most estimates of $3.95 a share for 2016.  The company reaffirmed its three-year capital expenditure forecast for 2016-18. The forecast continues to show consistent spending on not only the utility business, but also alternative energy like solar.

One notable aspect about the firm is does not produce power or gas, like many other of the large utility firms.  For the large New York firm, electric revenues account for nearly two-thirds of revenue.   Gas provides approximately 15% while steam accounts for 5.5%.  Non-utility revenue has climbed to nearly 9% of total revenue. 65.3% of consolidated sales, gas revenues 14.7%, non utility revenues 8.9% and steam revenues 5.5%. The firm is broken into several groups including Consolidated Edison Solutions, which sells electricity and gas; Consolidated Edison Energy, which operates wholesale energy trading, Consolidated Edison Development, which acquires, develops and operates additional power generating projects.

A large part of determining the future for Consolidated Edison is based upon two elements, rate increases & solar. As far as rate increases, Consolidated Edison filed for its first rate increase in 2016 earlier last year.  It would have been the first increase in rates since 2012. Customer within New York City would have seen their overall bill increase 4.5% under Consolidated Edison’s proposed rate increase.  This could have potentially increased overall revenue by nearly $500 million for 2017.  However, Consolidated Edison agreed in September to a negotiated lower rate increase, but for a three-year period. Consolidated Edison would garner $195 million in the first year and then $155 million in the second and third years. As part of the agreement though, Consolidated Edison would spend $99 million for energy efficiency for the period of 2017-2019. As for gas, the settlement reduced gas rates in 2017 by $5.3 million, although allowing for increases of nearly $100 million in both 2018 and 2019. For Consolidated this is a win, as these are the first increases in rates for the company in New York in over four years. Capital expenditures totaled $3.42 billion in 2015 and the firm projected capital expenditures of over $4 billion for 2016. Expenditures will drop to approximately $3.7 billion in both 2017 and 2018.  This includes the new spending for New York City.

Its the renewal energy outside of traditional utilities that will allow Consolidated to improve its profile. The firm has committed a substantial portion of its budget towards renewable energy and partnerships. Solar is a big part of this.  The firm’s ConEdison Solutions division recently acquired the assets of Ross Solar Group LLC, a provider of turnkey solar system solutions for residential, commercial and municipal customers throughout the Northeast. The firm also acquired a 106-megawatt Alamo 7 solar plant in Texas in September for $227 million. Its ConEdison Development division announced the acquisition of Juhl Energy Services, Inc.  Juhl is a development pipeline of wind projects and portfolio of clean energy solutions.

The firm purchased Juhl Energy’s interest in a portfolio of three operating wind projects located in Minnesota and Iowa. With the purchase, it also acquired an interest in a pipeline of wind projects of approximately 500 -megawatts in the Mid-West. In addition to buying Alamo 7, ConEdison also purchased OCI Solar’s 6-megawatt Alamo 3 in San Antonio’s Northeast Side and the 95-megawatt Alamo 5 near Uvalde, Texas.  The large utility company also unveiled plans to add solar panels to the utility buildings within New York City, which could produce up to 11-megawatts of electricity.  These acquisitions and further development of solar within New York enhances ConEdison’s alternative assets as the firm attempts to diversify its operations and enter the more lucrative alternative energy space across the U.S.

As far as the financial structure of the firm, long-term debt is now $13.7 billion, up from $12 billion at the end of 2015.  The firm through its various divisions issued $218 million 4.21% senior secured notes due 2041, $95 million 4.07% senior secured notes due 2036, and $500 million 2.00% senior notes due 2021.  This was all to fund a large capital expenditure budget in 2016 and also for the aforementioned acquisitions.  Cash as of the end of quarter three was $150 million.  The firm maintains an A- credit rating from S&P, although the firm is on negative watch. But overall, with its secure New York City revenue stream the firm remains investment grade.

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Due to its steady rate profile, Consolidated Edison has less revenue instability than most of its peers. But, its growth rate in dividends remains below the industry average due to its lower growth profile. Higher rates in New York City in 2017 plus renewables offer the potential for low-single-digit earnings growth through the next three years. Stock performance, as indicated in the chart above, has been below that of the S&P 500 and the SPDR Utility Fund (XLU). The stock’s performance has been hampered by concern over the smaller than expected rate increase, as well as increased capital spending.

But for any dividend investor, the firm is a very low-risk stock, with a beta of 0.55  Its will always be a very stable, non-cyclical business entity. Consolidated Edison has increased dividends for 42 consecutive years. The detriment to owning ED at this moment is that the dividend yield is well below that of the 4.69% it set back in early 2014. Thus many investors may want to wait for a pullback in the price to the mid $60s.  It currently trades at 17.5 times our estimate of $4.15 for next year.

However, based on the firm’s consistent earnings & dividend profile, higher than average dividend yield, investment grade rating,  and very low beta,  Consolidated Edison still remains a top ranked firm with the sector.  It thus continues to qualify for the third straight year as a member of our  Top 100 Dividend Stocks list.  

Please subscribe to our monthly premium newsletter to find out more about our thoughts on the utility industry & which stocks are listed in our model portfolio.  

Consolidated Edison Inc. Dividend Yield Chart (Click to enlarge)

ed2

Chart Explanation:  Dividend growth stocks may be viewed favorably when the current yield is above historical readings for the past 5 years.

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