Consolidated Edison (ED 1.29%) has likely flown under the radar of most dividend investors over the years. That could be because the New York City-focused utility doesn't offer a particularly high yield, nor is it growing as fast as some of its peers. However, what it lacks in flashiness, it more than makes up for with consistency, as it has increased its dividend like clockwork for an amazing 45 consecutive years.
That trend should continue in those to come, which makes it an ideal stock for those looking for a low-risk income-growth stock.
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Con Edison 101
Con Edison is a utility that services customers in New York City and the surrounding areas. In addition to directly supplying customers with gas and electric, the company holds interests in two natural gas pipeline operations and an electricity transmission business. It also operates a large-scale renewable energy business -- it's the second-largest solar power producer in the country -- though most of those assets are outside of its operating area. However, what all these assets have in common is that they generate stable cash flow, backed either by long-term contracts or a regulatory framework.
That gives Con Edison the funds to invest in expanding its operations as well as to pay a dividend, which currently yields 3.4%. The company typically pays out between 60% and 70% of its earnings via its dividend, which is right in line with the sector average. Meanwhile, it reinvests the rest, as well as utilizing its investment-grade balance sheet, to fund the growth of its utility, transmission, and clean energy operations.
Those investments have grown the company's earnings at a steady pace, enabling it to increase its dividend consistently. It has boosted its payout at a 3.3% compound annual rate over the past five years, which is an acceleration from the 1.3% yearly pace it increased its payout during the prior five-year period. While that's a much slower pace than many of its utility peers, slow and steady has won the race over the years. During the last three decades, for example, Con Edison has generated a more-than-1,580% total return for its investors, which has beaten the S&P 500's roughly 1,480% total return during that time frame.
Visible growth up ahead
Con Edison should have plenty of power to keep increasing its payout. That's because it currently expects to invest more than $12 billion on infrastructure projects over the next three years to expand its operations. It will invest most of that money into its utilities to grow its rate base, enabling it to earn a predictable return. Meanwhile, it expects to spend about $1 billion over those three years to expand its renewables operations. Those investments should enable the company to continue growing its earnings and dividend by a single-digit annual pace.
Meanwhile, it should have lots of opportunities to keep growing in the future. One big driver is New York state's ambitious goal to become carbon neutral by 2050. A big part of that strategy will be to significantly increase its renewable energy output. That should provide plenty of investment opportunities for Con Edison.
A great low-risk dividend growth stock
Con Edison has given its investors a raise for an amazing 45 straight years. That trend should continue since it has a sound financial profile and visible growth prospects. That makes it a great dividend stock for investors who are looking for a low-risk way to collect a steadily rising income stream.
