Dividend Kings In Focus: Consolidated Edison

Printed on January twenty second, 2024 by Bob Ciura

The Dividend Kings encompass firms which have raised their dividends for no less than 50 years in a row. Due to their unparalleled streak of annual dividend will increase, it’s common to view the Dividend Kings as among the many finest dividend progress shares within the inventory market.

You’ll be able to see the complete checklist of all 54 Dividend Kings right here.

We additionally created a full checklist of all Dividend Kings, together with related monetary statistics like dividend yields and price-to-earnings ratios. You’ll be able to obtain the complete checklist of Dividend Kings by clicking on the hyperlink beneath:

Consolidated Edison (ED) not too long ago elevated its dividend for the fiftieth consecutive 12 months. In consequence, the corporate now joins the unique checklist of Dividend Kings.

Over time, utilities have change into relied upon for his or her regular dividend payouts, even throughout recessions. This text will analyze the corporate’s enterprise overview, future progress prospects, aggressive benefits, and extra.

Enterprise Overview

Consolidated Edison is a large-cap utility inventory. The corporate generates roughly $14 billion in annual income and has a market capitalization of roughly $31 billion.

The corporate serves over 3 million electrical prospects, and one other 1 million gasoline prospects, in New York. It operates electrical, gasoline, and steam transmission companies.

On October 1st, 2022, Consolidated Edison introduced that it was promoting its curiosity in its renewable power enterprise to RWE Renewables Americas, LLC for $6.8 billion. The transaction is anticipated to shut within the first half of 2023. Because of this transaction, Consolidated Edison is not going to concern frequent inventory this 12 months whereas additionally withdrawing its share issuance steerage for 2023 and 2024. The corporate sometimes often points shares for financing.

On November third, 2023, Consolidated Edison reported third quarter outcomes for the interval ending June thirtieth, 2023. For the quarter, income grew 7% to $3.87 billion, which was $36 million greater than anticipated. Adjusted earnings of $561 million, or $1.62 per share, in comparison with adjusted earnings of $579 million, or $1.63 per share, within the earlier 12 months. Adjusted earnings-per-share have been $0.03 above estimates.

As with prior quarters, larger price bases for gasoline and electrical prospects have been the first contributors to ends in the CECONY enterprise, which is accounts for the overwhelming majority of the corporate’s property. Common price base balances are anticipated to develop by 6% yearly by 2025. Consolidated Edison expects capital investments of practically $15 billion for the 2023 to 2025 interval.

Consolidated Edison supplied up to date steerage for 2023 as nicely. The corporate now expects adjusted earnings-per share in a spread of $5.00 to $5.10 for 2023, up from $4.85 to $5.00 and $4.75 to $4.95, beforehand. On the new midpoint, this might be a ten.5% improve from the prior 12 months.

Development Prospects

Earnings progress throughout the utility trade sometimes mimics GDP progress. Over the subsequent 5 years, we count on Consolidated Edison to extend earnings-per-share by 3.5% per 12 months.

We count on ConEd to proceed its sample of modest progress transferring ahead. ConEd ought to proceed to generate modest earnings progress annually by a mixture of latest buyer acquisitions and price will increase, helped by the gradual enchancment of the U.S. financial system and a return to normalized climate situations,

The expansion drivers for Consolidated Edison are new prospects and price will increase. One good thing about working in a regulated trade is that utilities are permitted to lift charges regularly, which just about assures a gradual stage of progress.

Supply: Investor Presentation

Consolidated Edison expects to extend its price base by ~7% annually, by 2024. This can be a pure method for a utility to generate regular income and earnings progress.

One potential menace to future progress is rising rates of interest, which may improve the price of capital for firms that make the most of debt, corresponding to utilities. Thankfully, the market is more and more anticipating the Federal Reserve to cease elevating rates of interest this 12 months and presumably even start to chop them. Reducing charges helps firms that rely closely on debt financing, corresponding to utilities, so buyers don’t should be involved about Consolidated Edison in a falling-rate cycle.

Even when charges do proceed to go up, Consolidated Edison is in robust monetary situation. It has an investment-grade credit standing of A-, and a modest capital construction with balanced debt maturities over the subsequent a number of years. A wholesome stability sheet and powerful enterprise mannequin assist present safety to Consolidated Edison’s dividends.

Traders can moderately count on low single-digit dividend will increase annually, at a price much like the corporate’s annual adjusted earnings-per-share progress.

Aggressive Benefits & Recession Efficiency

Consolidated Edison’s fundamental aggressive benefit is the excessive regulatory hurdles of the utility trade. Electrical energy and gasoline providers are vital and very important to society. In consequence, the trade is very regulated, making it just about not possible for a brand new competitor to enter the market. This offers quite a lot of certainty to Consolidated Edison.

As well as, the utility enterprise mannequin is very recession-resistant. Whereas many firms skilled giant earnings declines in 2008 and 2009, Consolidated Edison held up comparatively nicely. Earnings-per-share throughout the Nice Recession are proven beneath:

2007 earnings-per-share of $3.48
2008 earnings-per-share of $3.36 (3% decline)
2009 earnings-per-share of $3.14 (7% decline)
2010 earnings-per-share of $3.47 (11% improve)

Consolidated Edison’s earnings fell in 2008 and 2009 however recovered in 2010. The corporate nonetheless generated wholesome income, even throughout the worst of the financial downturn. This resilience allowed Consolidated Edison to proceed growing its dividend annually.

The identical sample held up in 2020 when the U.S. financial system entered a recession as a result of coronavirus pandemic. Final 12 months, ConEd remained extremely worthwhile, which allowed the corporate to lift its dividend once more.

Valuation & Anticipated Returns

Utilizing the present share value of ~$89 and the midpoint of 2023 steerage, the inventory trades with a price-to-earnings ratio of 17.6. That is above our truthful worth estimate of 16.0, which is consistent with the 10-year common price-to-earnings ratio for the inventory.

In consequence, Consolidated Edison shares look like overvalued. If the inventory valuation retraces to the truthful worth estimate, the corresponding a number of contractions would cut back annualized returns by 1.9%.

Thankfully, the inventory may nonetheless present constructive returns to shareholders, by earnings progress and dividends. We count on the corporate to develop earnings by 3.5% per 12 months over the subsequent 5 years. As well as, the inventory has a present dividend yield of three.7%.

Utilities like ConEd are prized for his or her secure dividends and secure payouts. Placing all of it collectively, Consolidated Edison’s complete anticipated returns may seem like the next:

3.5% earnings progress
-1.9% a number of reversion
3.7% dividend yield

Added up and Consolidated Edison is anticipated to return 5.3% yearly over the subsequent 5 years. This can be a modest price of return, however not excessive sufficient to warrant a purchase suggestion.

Earnings buyers could discover the yield engaging, as the present yield is meaningfully larger than the yield of the S&P 500 Index and grows very persistently. The corporate has a projected payout ratio of 64%, which signifies a sustainable dividend.

Last Ideas

Consolidated Edison could be a useful holding for earnings buyers, corresponding to retirees, on account of its 3.7% dividend yield. The inventory gives safe dividend earnings, and can be a Dividend King, that means it ought to increase its dividend annually.

Due to this fact, risk-averse buyers wanting primarily for earnings proper now–corresponding to retirees–may see better worth in shopping for utility shares like Consolidated Edison. Nevertheless, we price the inventory as a maintain at right now’s present value of $89.

The next articles include shares with very lengthy dividend or company histories, ripe for choice for dividend progress buyers: