Consolidated Edison, Inc. (ED): Safe Retirement Income With a 4% Dividend Yield

Dividend Analysis

We analyze 25+ years of dividend data and 10+ years of fundamental data to understand the safety and growth prospects of a dividend. ED’s long-term dividend and fundamental data charts can all be seen by clicking here.

Dividend Safety Score

Our Safety Score answers the question, “Is the current dividend payment safe?” We look at factors such as current and historical EPS and FCF payout ratios, debt levels, free cash flow generation, industry cyclicality, ROIC trends, and more. Scores of 50 are average, 75 or higher is very good, and 25 or lower is considered weak.

Consolidated Edison, Inc. (NYSE:ED) earned a very strong dividend Safety Score of 78, suggesting its dividend payment is very secure. The company’s payout ratio is reasonable, it generates consistent cash flow, and its business is protected by government regulations.

Over the last four quarters, ED’s earnings payout ratio is 70%. While this would be risky for cyclical companies, it is reasonable for a stable utility company like ED.

Looking below, we can see that ED’s earnings payout ratio has remained between 60% and 70% most years, in line with management’s target.

ED EPS Payout Ratio

Source: Simply Safe Dividends

Not surprisingly, we can see that ED performed well during the financial crisis. Sales fell by 4% in 2009, and operating margins actually improved. While demand for electricity drops a little during economic slowdowns, it is still an essential need for consumers and businesses.

ED Sales Growth

Source: Simply Safe Dividends

As we previously mentioned, ED’s profitability is determined by state authorities, which determine rate increases and an acceptable return on capital for utility companies. For this reason, we can see that ED’s return on equity has remained very stable at 9-10% over the last decade:

ED Return on Equity

Source: Simply Safe Dividends

Looking at the balance sheet, ED maintains a lot of debt relative to its cash on hand. With that said, utilities have been able to maintain more debt than an average business because their cash flow generation is so consistent. Even if interest rates rise,

ED Credit Metrics

Source: Simply Safe Dividends

Finally, it’s worth mentioning that ED suspended its dividend in 1974, which was the first time since 1885 that the company omitted its quarterly dividend.

Why did this happen? At the time, ED was much more involved in power generation and relied heavily on various fuels for its generating facilities. The price of residual oil unexpectedly quadrupled, crimping profitability. Management also made a few executional missteps, and ED was heavily dependent on capital markets to finance its ongoing operations. Investor confidence in utility companies plunged.

We don’t view this as a risk today (ED is not involved in electricity power generation, only distribution), but it’s worth mentioning. Altogether, we believe ED’s dividend payment is very safe.