Consolidated Edison (ED 0.73%) has grown its over-180-year-old utility business in line with the growth of its primary market, New York City. And, along the way, it has increased its dividend for an amazing 43 years and counting. Although it's expensive today, if you are looking for a steady dividend payer this utility and its 3.2% yield should be on your shortlist. Con Ed's dividend growth probably won't excite you in any one year, but this investment-grade utility has created a dividend record that few companies of any kind have matched. Here's a quick primer on what you need to know about Con Ed.
A bit about the business
Con Ed operates in and around New York City, providing electricity to around 3.6 million customers in this vibrant, growing, and financially important region. It also provides natural gas to around 1.2 million customers, and steam within parts of the Big Apple for things like heating. These government-regulated businesses represent about 90% of the company's GAAP earnings. It's the foundation on which Con Ed's impressive dividend record has been built.
Image source: Getty Images
The utility, however, is centered around delivery. Consolidated Edison passes the cost of energy on to customers while charging for the use of the delivery infrastructure it owns. Regulators generally look positively on infrastructure investment, allowing utilities to earn favorable returns on such spending -- which is good for Con Ed's future dividend paying ability since it plans to spend $9.4 billion (roughly 85% of its capital budget) on its regulated assets between 2017 and 2019.
The focus on delivery also positions Con Ed well within the broader utility industry. Electricity is a fast-changing market, with customers increasingly generating their own power and selling the excess into the grid. Since Con Ed owns the grid, it is situated to be a key toll taker on the electric highway of the future, no matter who is generating the power.
| Consolidated Edison Dividend Overview | |
| Current Yield: | 3.2% |
| Number of Consecutive Annual Increases: | 43 |
| Most recent increase: | 3% |
| Payout Ratio: | 65% |
But it doesn't stop there: the company also owns long-distance transmission assets, in both electricity and natural gas, and a contract-driven renewable power business. These are relatively small businesses, but they provide higher growth prospects, and further show that while Con Ed may be an old utility it has definitely been changing with the times.
The balance of things
And all of that sits atop Consolidated Edison's solid financial foundation. Long-term debt makes up around 50% of the capital structure. That's a solid number for an asset-heavy business, particularly since Con Ed has a large number of recurring customers with nowhere else to go if they want electricity and gas. The utility's debt to EBITDA ratio, meanwhile, is roughly 3.9, below that of giants like Duke Energy (DUK 0.07%) and Southern Co (SO 0.62%), which sport debt to EBITDA ratios of 5 and nearly 8, respectively.
Con Ed's dividend, a quick overview. Image source: Consolidated Edison
The company's payout ratio, meanwhile, is around 65% today. That's roughly in the middle of the company's targeted range of 60% to 70%. It's been able to hold the dividend roughly within that range for the past decade, with only 2009 (the tail end of a deep recession) inching above the high end. In other words, Con Ed looks like it's well positioned on both the balance sheet and revenue statement to support and grow its dividend well into the future.
Not perfect, but...
All of that said, Con Ed's dividend growth isn't going to be exciting. It is, at its core, a slow-growing utility. Over the past three years, the dividend has grown around 3% annually. That's enough to keep up with inflation, but not much more.
However, if you are looking for a conservative cornerstone to a more broadly diversified portfolio with some higher dividend growth names in it, that may be just fine with you. That's particularly true if you take into consideration its exceptionally low beta of just 0.09. That means Con Ed's stock doesn't generally follow the moves of the stock market, and thus offers a combination of income, stability, and diversification. While Con Ed's yield is low today compared to its own history, suggesting that the stock isn't cheap, the yield is still generous relative to the broader market. If you are building a diversified dividend portfolio right now, this slow and steady dividend payer is worth a deep dive, even if you just put it on your wish list to wait for a pullback.
