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

Dividend Growth Score

Our Growth Score answers the question, “How fast is the dividend likely to grow?” It considers many of the same fundamental factors as the Safety Score but places more weight on growth-centric metrics like sales and earnings growth and payout ratios. Scores of 50 are average, 75 or higher is very good, and 25 or lower is considered weak.

ED’s dividend Growth Score was 9, suggesting its growth potential is very low. As a mature utility company with a 70% payout ratio and limited earnings growth opportunities, this shouldn’t come as a surprise.

As seen below, the company’s dividend has grown between 1% and 2% per year over the last decade. Despite the low growth rate, ED is on the dividend aristocrats list and has raised its dividend for 41 consecutive years (the third longest streak in the electric utility industry).

Source: Simply Safe Dividends

Since ED’s EPS payout ratio (70%) is at the upper end of management’s target (60% to 70%), we expect future dividend growth to track earnings growth and remain in the low-single digit range.

Valuation

ED trades at 16x forward earnings and offers a dividend yield of 4%, which is a little below its five year average dividend yield (4.26%).

With future earnings growth likely in the 2-4% range, the stock’s total return potential would appear to be 6% to 8% per year. For retirees and conservative income investors concerned with capital preservation, we believe ED appears to be reasonably priced.

For investors wondering if today’s low interest rate environment has caused a bubble in utility stocks such as ED, we would encourage you to read our article, “Are Utility Stocks in a Bubble?”

Conclusion

Consolidated Edison, Inc. (NYSE:ED) is one of the most reliable utility companies that conservative income investors can find. With an operating history going back more than 180 years and over 40 straight years of dividend increases, ED has proven to be very durable and committed to its dividend.

The utility sector is being forced to evolve as renewable energy markets enjoy rapid growth, but ED appears to be reasonably positioned for this trend (recall that ED is the 6^th largest owner and operator of solar PV in North America). We think the bigger risk is future electricity rates allowed by New York’s public utility commission. For now, ED’s status as one of our favorite blue chip dividend stocks looks very secure.

Disclosure: None