Friday, November 26, 2010

Consolidated Edison Dividend Stock Analysis

Consolidated Edison (NYSE: ED) is the holding company of three related businesses. Consolidated Edison Company of New York, which supplies electricity, natural gas, and steam to customers in New York City and WestChester...

Orange and Rockland Utilities, which supplies electricity and natural gas to southeastern NY, northern NJ and northeast PA, and other Competitive Energy Businesses, which sell energy on the free market. 

The utilities group, which includes CECONY and ORU, provides the majority of the companies earnings. 

EPS has been rather erratic, but dividends have shown consistent, albeit slight, increases.  ED has increased it's dividend every year for 36 years.  A red flag here is free cash flow, which has had a number of negative years. 

Dividend growth is sluggish, averaging just 0.88% a year.  ED is content with raising their dividend by $0.02 a year, every year. 

Margins have been trending higher, although not by much.  The margins are slim, but for a utility company I was expecting as much.  At least they are being kept steady.

The balance sheet is mediocre, and from my research this is the norm for a utility.  I generally like to see debt / total capital of 35% or under.  

Payout ratio is high, averaging between 70 - 100% of net earnings.  I did not include the cash payout ratio, because there were so many years of negative free cash flow. 

ED currently trades at $48.18, giving it a trailing p/e of 15.34 and a forward p/e of 14.13.  The yield is currently 4.9%, and calculating any future YOC increases would be pretty simple.  Just add 0.02 to the dividend for every year you plan on holding ED. 

At this price, ED is trading above it's 5 year average low p/e of 11.71 and below it's 5 year average high yield of 6.13%

To compare:

PG&E trades at 16.61 x earnings and yields 3.88%

CH Energy trades at 19.18 x earnings and yields 4.65%

If you need a utility, you could do worse than ED.  But I really see no reason to invest unless you crave the safety of a regional monopoly, or for diversification reasons.  What you gain in stability and safety from a company like ED you lose in capital appreciation and dividend growth. 

If you plan on adding a utility to your portfolio, I would be hesitant to add ED at this price.  I recommend further research, as there may be better deals somewhere else.

Full Disclosure:  I do not own any ED.  My full list of holdings can be seen here


  1. I love the inclusion of FCF on your chart. It's very revealing, and excellent work.

  2. Thanks for the kind words! Much appreciated.