Consolidated Edison (NYSE:ED) will report its Q1 2014 earnings after the market closes today, and investors will be watching closely to see whether this dividend stock can pull itself out of the dumps. Here are the three things you need to watch for in Consolidated Edison's latest earnings report.
1. Free cash flow and dividends
Utilities are the stock market stalwarts of cash and dividends. Well, they used to be. Distributed generation opportunities, new government policy, and cheap natural gas are all forcing utilities to undergo some of the biggest business model changes they've ever experienced -- and not everyone's thriving.
For Consolidated Edison, the company has managed to keep its dividend in above-average territory for investors. The utility's current 4.5% yield is significantly higher than the industry average of 3.3%, and its trailing-12-month (TTM) yield beats out other big competitors.
Although Consolidated Edison has kept its yield high, its free cash has suffered as a result. The utility's TTM free cash flow has fallen over 80% since last July, even as other utilities have seen their own coffers overflow with cash.
2. Regulation, regulation, regulation
Consolidated Edison's free cash flow hasn't suffered due do its distributions alone. It is also undergoing a massive spending spree. While some of its investments are oriented around new ideas (e.g., a 50% stake in 360 MW of solar farms), the company is spending a whopping $12 billion to renovate its New York assets. Nearly half of Con Edison's New York City pipes were installed over 75 years ago, and it's going to cost around $10 billion to bring those pipelines up to proper standards.
If all goes well, those costs could be passed directly to consumers. But with a lackluster U.S. economy, regulators have been wary of hiking rates for cash-strapped customers, and Con Edison may have to bear a bigger portion of the payout than it would like to.
And it's not just consumers who don't want to pay more. Four New York retail natural gas suppliers sued Con Edison two weeks ago, accusing it of passing on procurement-related costs this past winter. It will be interesting for investors to see whether the utility chooses to address this latest issue during its earnings report.
3. Earnings growth
Utilities aren't growth stocks -- they're dividend stocks. But even dividend stocks need some growth to grow dividends, and utilities have been hard-pressed to find it in the past few years. The combination of hard-to-get rate hikes and subdued electricity growth have left utilities with somewhat stagnant sales.
Consolidated Edison,'s revenue grew just 1% for fiscal 2013, and it expects a 1% decline for fiscal 2014. If growth expectations improve, that'll mean more potential for higher profits. But if they fall, it puts Con Edison in an even stickier situation.
Justin Loiseau has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.