Lanny and I were painting the Dividend Diplomats’ headquarters last week (aka – his house). He left to take a quick water break and came back pretty excited. When he gets this tone in his voice, I know that only means one thing….there is a great stock that’s price is falling. He brought up the fact that Consolidated Edison’s stock price was down over 1.5% that day. Instantly I was excited because ED is one of our Top 5 Foundation stocks. After a brief discussion, I was sold. Here is why I added to my position in Consolidated Edison in June.
Why Consolidated Edison (ED) ?
Founded in 1823, Consolidated Edison is one of the oldest utility companies today. The company has grown over time and is now one of the largest utility companies currently trading. ED distributes electricity and gas to a massive market of customers, and the even operate steam plants in Manhattan. As a dividend growth investor, the utility industry is always appealing as it provides a slow and steady cash flow due to the nature of the highly regulated industry. It may not have the flash appeal as an up and coming growth stock in the tech industry, but that’s not why you seek an investment in the utility industry.
Consolidated Edison has also earned the coveted title of Dividend Aristocrat and the company has increased their dividend for 44 years (after their increase in January). We will look at the company’s dividend growth later on in the article! Overall, the company’s sales revenue from their last 10-K were over $12b and the company’s net income was $1.1b. The company is pretty darn consistent as well, as their revenues and net income in 2017 were approximately the same as 2016 and 2015. Man oh man do I love the consistency of this company.
Dividend Diplomats’ Stock Screener – Consolidated Edison
I’m always interested in adding to a Dividend Aristocrat that I like. But the valuation also has to make sense. Hence, why we run all purchase through the Dividend Diplomats’ Dividend Stock Screener. For this analysis, I will use my purchase price of $71.50/share and a $4.27 shares EPS figures (average current year EPS estimates per analysts). Here we go!
- Price to Earnings Ratio – The company’s P/E Ratio was 16.75X, which is below the broader market’s P/E Ratio
- Dividend Payout Ratio – With an annual dividend of $2.86/share, the company’s current payout ratio is 67%. This is slightly above our 60% threshold; however, this is a utility stock and the industry is known for higher payout ratios. I’m not overly concerned about the fact that ED’s payout ratio is just above our threshold.
- Dividend History and Dividend Growth Rate – ED is a Dividend Aristocrat, so they easily check the box of having demonstrated their ability to grow their dividend over the long haul. The company’s 5-year average dividend growth rate is only 2.86% percent. The amount is low, that’s for sure. But with the company’s yield and their history of low dividend increases, I’m not overly concerned about the growth rate. The company has a rock solid dividend yield and a long-term dividend payment history. That’s what weighed heavily in my decision here.
- Dividend Yield – At the time of purchased, ED’s dividend yield was 4%. Yes, that was planned! But the yield is very nice and is above my portfolio’s weighted average dividend yield by over 100 basis points and it far exceeds the S&P 500’s dividend yield.
- Five-Year Average Dividend Yield – ED’s 5-year average dividend yield is 3.90%. ED’s dividend yield at the time of the purchase was 4%, indicating that the company could be slightly undervalued.
Summary – The Purchase
In total, I purchased 21 shares of ED at $71.50/share, adding $60.06 in forward dividend income. This purchase was in my traditional investment account. I’ve mentioned several times that I already owned shares of ED. These shares were in my Roth IRA, so I now own ED in two separate accounts. But my combined position is 38.67 shares, producing $110.60 in forward dividend income annually. This purchase did miss the ex-dividend date for the second quarter, so I’ll receive my first dividend income from the new position in September. Overall, I couldn’t be happier with the position and I’m excited to continue to build a position in a Dividend Aristocrat.
What are your thoughts about my purchase? Are you watching or considering ED as well? Or would you have looked elsewhere for investment opportunities?
-Bert