Consolidated Edison's (NYSE:ED) dividend is a gold standard in the energy sector. With long history of distributions and a current 4.2% yield, here are three reasons Consolidated Edison stock dividends are here to stay.
1. Dividend Aristocrat Status
If there one lesson every beginning investor should learn, it's this: Past precedent is not indicative of future performance. It's true for stock prices, dividends, and even your favorite sports team.
But where Consolidated Edison, is concerned, its dividend distribution history is so embedded in its past that we can be sure it's a high priority for its future. The utility has been doling out dividends since 1977, and has steadily raised its dividend over the past decade. While there's no guarantee of future distributions, this "dividend staircase" looks to keep heading higher.
2. Regulation Station
A corporation doesn't just decide to dole out dividends -- it also has to find a way to consistently pay for them. Consolidated Edison pulls over 90% of its earnings from its regulated subsidiaries. With the government's go-ahead for a consistent return-on-equity, Consolidated Edison can count on its 3.4 million electricity customers and 1.1 million gas customers in New York for earnings that aren't going anywhere.
Looking ahead, regulatory frameworks are changing. New York is realigning its rules to support clean energy, expand distribution systems, and improve overall energy efficiency and diversity. For better or worse, Con Ed's botched preparedness for Hurricane Sandy in 2012 was a wake-up call, and the utility is well ahead on New York's new regulations. The company is doubling down on its natural gas infrastructure investments and customer conversion, and is working hard to upgrade and fortify its electricity grid system.
3. Debt? What debt?
Most companies have some debt, and utilities are the elephants in the trading room. These corporate giants run on borrowed cash, taking out more than they're worth to fund big projects. The aforementioned regulated earnings allow utilities to do this with confidence, but some utilities still bite off more than they can chew.
Not so with Consolidated Edison. With a debt-to-equity ratio of 1.02, the company has a smaller proportion of debt than around 60% of its peers. The same holds true for its 0.31 debt-to-assets ratio.
Most importantly, Consolidated Edison isn't financing too much of its dividend with debt. The company's payout ratio (total dividend distributions as a percentage of earnings, annualized) clocks in at a respectable 57%, and Con Ed has been cash flow positive for four of the last five years.
Time to invest?
Con Ed's dividend most likely isn't going anywhere -- a welcome message for any experienced income investor. But for those looking to invest in Con Ed today, its quarterly distributions aren't as cheap as they used to be. The company's stock price took a leap last week and is currently hovering at a 52-week high. That may mean less upside for investors due to the company's seemingly rich valuation, but those on the hunt for a solid dividend need look no further.
Justin Loiseau has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.