Consolidated Edison, Inc. (NYSE:ED) stock has been in the red for the last 12 months, underperforming Mr. Market and its direct competitors. The utility has been hit hard by hurricanes and economic recessions alike, and some investors are wondering whether Con Ed's dividend is the next to be cut. Here's what you need to know.
The end of a dividend? Con Ed's latest earnings have been a mixed bag. Its Q4 2012 earnings fell $0.04 below analysts' predictions while Q1 2013's numbers clocked in $0.04 above expectations. Over the past year, Consolidated Edison, Inc. (NYSE:ED) stock has dropped 8.3%, an embarrassing return compared to the S&P 500's 22% profit, and more than 12 percentage points below the Dow Jones U.S. Utilities Index.
But in the same period, the utility upped its dividend 1.65%, and over the last 10 years has steadily grown its distribution by 9.8%. Its most recent increase stands in stark contrast to two of its competitors, Exelon Corporation (NYSE:EXC) and Atlantic Power Corp (NYSE:AT) . Exelon announced in February that it would be cutting its dividend by 40%, while Atlantic Power Corp (NYSE:AT) gave its own distribution a whopping 66% haircut. Both utilities had overextended themselves, and their dividend reduction paved the way for more frugal and focused financial management.
Currently, Consolidated Edison, Inc. (NYSE:ED) stock sports a substantial 4.3% yield. That's still lower than Exelon Corporation (NYSE:EXC)'s 6.2% and Atlantic's 17.9% yield, although Atlantic's is primarily a result of its 62% drop for 2013. But despite Con Ed's relatively low yield, there are three reasons its substantial dividend is here to stay.
1. Dabbling in debt Utilities are capital intensive corporations, and low interest rates have pushed many utilities to take on excessive amounts of debt. While there's little doubt that extra cash can fuel future earnings, Con Ed has used debt conservatively. Its debt-to-equity ratio clocks in at just 1.01, lower than 60% of its peers. At 0.29, its debt-to-asset ratio tells a similar tale. For Consolidated Edison, Inc. (NYSE:ED) stock, debt is no dividend destroyer.