Dividend Kings In Focus: Consolidated Edison

Printed on January twenty second, 2024 by Bob Ciura

The Dividend Kings include corporations which have raised their dividends for not less than 50 years in a row. Due to their unparalleled streak of annual dividend will increase, it is not uncommon to view the Dividend Kings as among the many finest dividend progress shares within the inventory market.

You’ll be able to see the total 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 total checklist of Dividend Kings by clicking on the hyperlink under:

Consolidated Edison (ED) lately 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 turn 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 predicted to shut within the first half of 2023. Because of this transaction, Consolidated Edison won’t difficulty widespread inventory this 12 months whereas additionally withdrawing its share issuance steerage for 2023 and 2024. The corporate sometimes repeatedly 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 had been $0.03 above estimates.

As with prior quarters, greater fee bases for gasoline and electrical prospects had been the first contributors to ends in the CECONY enterprise, which is accounts for the overwhelming majority of the corporate’s property. Common fee base balances are anticipated to develop by 6% yearly by way of 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 effectively. 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 may be a ten.5% improve from the prior 12 months.

Progress Prospects

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

We anticipate ConEd to proceed its sample of modest progress shifting ahead. ConEd ought to proceed to generate modest earnings progress annually by way of a mixture of latest buyer acquisitions and fee 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 fee will increase. One advantage of working in a regulated business is that utilities are permitted to boost charges frequently, which just about assures a gradual stage of progress.

Supply: Investor Presentation

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

One potential menace to future progress is rising rates of interest, which might improve the price of capital for corporations that make the most of debt, similar 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 corporations that rely closely on debt financing, similar to utilities, so buyers don’t have to 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.

Buyers can moderately anticipate low single-digit dividend will increase annually, at a fee just like the corporate’s annual adjusted earnings-per-share progress.

Aggressive Benefits & Recession Efficiency

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

As well as, the utility enterprise mannequin is extremely recession-resistant. Whereas many corporations skilled massive earnings declines in 2008 and 2009, Consolidated Edison held up comparatively effectively. Earnings-per-share through the Nice Recession are proven under:

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 earnings, even through the worst of the financial downturn. This resilience allowed Consolidated Edison to proceed rising 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 boost 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 in step with the 10-year common price-to-earnings ratio for the inventory.

In consequence, Consolidated Edison shares seem 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 might nonetheless present optimistic returns to shareholders, by way of earnings progress and dividends. We anticipate 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 steady dividends and protected payouts. Placing all of it collectively, Consolidated Edison’s complete anticipated returns might appear like the next:

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

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

Revenue buyers might discover the yield engaging, as the present yield is meaningfully greater 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.

Ultimate Ideas

Consolidated Edison could be a invaluable holding for earnings buyers, similar to retirees, as a result of its 3.7% dividend yield. The inventory gives safe dividend earnings, and can be a Dividend King, which means it ought to elevate its dividend annually.

Subsequently, risk-averse buyers wanting primarily for earnings proper now–similar to retirees–might see larger worth in shopping for utility shares like Consolidated Edison. Nevertheless, we fee the inventory as a maintain at immediately’s present value of $89.

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