Consolidated Edison (ED) Stock Analysis

Currently, utilities are known for their strong dividend paying ability.  Almost as if they are a fixed income producing asset.  This leads me into the one dividend aristocrat that catches my eye – Consolidated Edison.

I am a huge history guy and love the wealth that was created from the late 1800s and early 1900s.  Thomas Edison definitely was a founding father of this old wealth that continues to transpire and “light” our economy today.  I understand utilities, I know how they physically work and I know what benefit and value it provides: Providing energy to fuel the day-to-day of operations.  Let’s think big businesses, industries, etc., all the way to our entertainment platforms and this stems into our very own households.  The need is and for now – will always be there, therefore, this is a very used product that will always be used. 6258783_600x338

The real reason why I want to dive into Consolidated Edison (ED) is due to the fact that I have owned FirstEnergy (FE) and have been unhappy as a shareholder/minority business owner.  This could help fuel my decision to cut my position away from FirstEnergy and leak my proceeds into Edison.  Though I am loyal to my birth-city of of Akron, Ohio – I am more loyal to my stock portfolio and financial freedom aspirations.  Let’s see what Edison has to offer:

  1. They are an Aristocrat, paying increasing dividends for 25+ years.  The 3 year average dividend growth rate, however, is only a 1.64%.  However, this far beats what I currently own, especially that FirstEnergy slashed their dividend earlier this year.
  2. After their 2nd Q, showing a 6 months to date EPS of $1.95, leads to a projected EPS of $3.90.  The share price of Edison at Friday’s close was $58.12, which leads to a P/E below 15 at 14.90.  This is undervalued in my book, even if they’ve gone up 5.1% since year end in terms of share price.  I like seeing this below 15.
  3. Dividend Yield: Currently is at 4.34%, well above the S&P average of sub-1.90% and is above my FE at 4.16%.  The 5 year dividend yield average is 4.57%, which is 23 bps higher than the current yield.  I’d obviously like to see this as a closer gap.
  4. Payout Ratio: Based on EPS of $3.90 and a dividend quarterly $0.63 ($2.52 per year), this equates out to a payout ratio of roughly 64.60%.  This is a tad higher than the 60% that I like to see.  When pressed against FirstEnergy, is far better as FE has over a 100% payout ratio currently, aka is this sustainable?
  5. Refer back to 1.  Joking.  This company was named best green for utilities in 2014 for reducing omissions, etc. I do like that and think that’s a great initiative for costs and services to provide customers.  EPS Q over Q grew at 18% from prior year to this year, net income 6 months grew at 11.76% year over year.  I like this, can you dig it?

With that being said – they will be added to my watch list at the moment.  Transitioning this from First Energy could be a good move, as it would be in a better performing company who has always increased their dividend year after year.  Overall Pros: Higher yield, Grows Dividend, Payout Ratio is better, P/E is undervalued, yield is above S&P, Aristocrat, YOY higher performance.  What Utility company do you own?  Thoughts on this old Edison company?  Would YOU transition out of FirstEnergy and move into Edison?  Would love the feedback!  Thanks everyone, talk to you all soon.

-Lanny

DISCLOSURE: I DO NOT RECOMMEND ANY DECISION TO THE READER OR ANY USER, PLEASE CONSULT YOUR OWN RESEARCH. THIS IS ACTUAL DATA, ANALYSIS, HOWEVER I BASE NO INVESTOR RECOMMENDATION.  THANK YOU FOR YOUR UNDERSTANDING.
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19 thoughts on “Consolidated Edison (ED) Stock Analysis

  1. Nice points Lanny. Utilities have become slow growth high yielders. When I wanted some exposure to utilities a while back, I was not sure which one to get. Hence I ended up getting VPU – Vanguard Utilities ETF. When I plan to add to this sector, ED definitely needs to be looked at.
    Thanks.

    DGJ

    • DGJ,

      Thanks for the stop by! I appreciate the comment. I am starting to see some growth in the yield among a few utilities. Not a bad move buying the ETF — almost a set and forget policy, well, not absolutely to forget, but you know what I mean. We shall see what I do with my decision. Market had a nice down day, so I am definitely loving that!

      -Lanny

  2. Lanny,

    Thanks for the info on ED. It is no doubt a great company. I really would like to own another utility at some point, but I am afraid that if rates go back up ED along with other utilities like SO will get slaughtered. I would probably stick with quasi-utilities like VZ at 4.4% and T at 5.2% with better PEs and better growth prospects. If SO or ED get close to 6%, I might take another look at them. In the meantime APU is still high on my list as it offers a more traditional utility yield at over 7%.

    Take care,
    MDP

    • MDP,

      Appreciate your comment. Rates are all over the place. Estimates vs actuals, actuals vs estimates – what’s going on with these utility companies? In all seriousness, they’ve always gone through price fluctuations, period, so we shall see.

      I do like the telecommunications. Which do you like better right now? Do you think APU’s 7% yield is sustainable? Haven’t analyzed yet, but thought I’d ask. Love the insight and different ideas MDP, always.

      -Lanny

    • Tawcan,

      Which do you like better T or VZ? Would love to hear your thoughts. What direction is ATT heading? What are your thoughts are on Utilities? Thanks Tawcan, eager to hear your points, as it’ll help me as well and the community. Good stuff. It’s also about your portfolio weightings/diversification.

      -Lanny

  3. ED has been a long time portfolio holding of mine along with SO and D. While I agree with the comments about ED’s growth prospects relative to some of the telecom names I feel that every portfolio deserves some exposure to slow growth high yield utilities. I know they aren’t sexy to invest in but owning 2% – 5% won’t hurt anyone’s long term returns while offering a solid steady long term dividend payer.

    • DivHut,

      Thanks for the comment on ED. Great stock to own, an Aristocrat, a well above average yielder with slow appreciation on the dividend front. However – I noticed the last dividend increase was higher/greater than last year, and the dividend increase before that was higher than the year before… do you see the trend I’m going with? Do you think ED can be on a track to do a 3-5% raise for 2015? EPS/Net Income is growing at a far higher rate. Would be curious to see what you think! Thanks again DivHut, talk soon.

      -Lanny

      • You bring up interesting points about ED’s income increase etc. but personally I wouldn’t bank on tremendous dividend growth. It would be nice to get a surprise raise above the “norm” but I know going into a stock like ED that I’m not looking for wild dividend growth rather stable earnings and low dividend growth but high current yield. For dividend growth I own the likes of AFL, etc. Remember the reason a person buys into a stable old utility. No one gets into these solid utilities for rapid growth or fast dividend appreciation.

        • Solid points DH. I agree, similar to what Mantra had about three different levels of dividend players. This is definitely on the fixed income side of things, higher yield, low growth. Obviously would love a 3-5% dividend growth rate if earnings continues in that direction. We shall see, still haven’t made a move yet on the utility side these last few weeks, a lot of monitoring though. Thought on swapping out the FirstEnergy I own for some ED?

          -Lanny

          • I wish I had a better handle on First Energy to offer an opinion for swapping it out for some ED but unfortunately I do not. The utilities have been very high for some time now and while I’d like to add to my positions in ED, SO and D I feel things are a little too hot in the sector as a whole. For now, I’m not even considering the sector.

  4. Hi Lanny,

    That’s bad news about FE’s dividend cut! I’ve yet to deal with a company that cuts dividends although it’d certainly be cause for me to consider selling the position.

    ED is on my watchlist; I didn’t include it when I looked at adding utility stocks last week as it had negative growth for the year but I may revisit it again. I have GXP & LNT for electricity utilities (and VPU which includes ED) so I’d likely have to sell one to make room for ED.

    Best wishes,
    -DL

    • DL,

      Thanks for the stop by! I was very upset by the FE cut, gut wrenching as a dividend investor!

      Interesting – I’ll have to look at GXP & LNT for the utilities. It’s an interesting play, that’s for sure. Talk soon!

      -Lanny

  5. Nice Analysis…we’ve been keeping our eye on ED for a few months now. In fact, I’ve actually have set a limit buy order and just watching for it to reach our desired price. Hope to be a owner soon! 🙂

    BTW, I’ve added your recent analysis of ED to my collection of stock analysis. Thanks for sharing and keep up the great work! AFFJ

    • AFFJ,

      Thanks for the post! What initially caught your eye with ED? I am assuming you may have hit that limit order?

      Thanks for adding the analysis! Actually – did you use our new URL link? Thought I would ask? I truly appreciate the spread of our analysis!

      -Lanny

      • Biggest reason for favoring ED is their dividend history. Definitely a company we want to own and take into retirement. The current price is pretty close but haven’t yet hit my limit price yet. I think I set it for $54. And yes, I did use the new URL link. 🙂

        Wishing you continued success! AFFJ

        • AFFJ,

          Nice! I would agree – the longevity to their dividend history is amazing and what better thing than to own a long lasting dividend aristocrat? I can agree with you for sure there. I hope that ED hits your price point!

          -Lanny

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