Is Consolidated Edison Safe & Stable?

By Ryan Guenette - September 13, 2012 | Tickers: ED, FE, NU, NWE, POM | 0 Comments

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The global economic picture is darkening rapidly and severely. The United States unemployment rate is still above 8.00%. The European Union is falling into a deep and dark recession. German bankers are scheming up a sophisticated plan to somehow keep the euro alive or conduct an orderly exodus from the common currency. Chinese bankers are suddenly realizing the fact that their economy is not an unstoppable machine, and are preparing for a “soft landing.” The stock market is swinging 100 points either way based solely the words of Ben Bernanke. While recent trading has been trapped in a tight range, the past year has been volatile and nerve-wracking. So it is of no surprise that investors have flocked to safe and stable companies such as Consolidated Edison (NYSE: ED). Edison is a holdings company, whose main subsidiary delivers electricity, natural gas, and steam to customers in the New York City and Westchester Country. Other holdings of the company delivers electricity to the population located in southeastern New York, northern New Jersey, and northeastern Pennsylvania. The company employs 15,000, and is valued at $17.76 billion the New York Stock Exchange. Over the past year, the company has rallied 8.10%, underperforming the S&P 500, which has rallied 19.80% over the same time period. So is Consolidated Edison safe & stable?

Concrete Fundamentals

In 2002, Consolidated Edison reported earnings per share of $3.02. In 2012, the average analyst consensus believes the company will derive $3.76 per share from its business operations. This represents a 24.50% increase in earnings per share over the course of a decade. Based on these statistics, the company’s compound annual growth rate (CAGR) is 2.22%, a slow-paced and sustainable growth rate. Edison is famous for its consistency and stableness, and should continue into the future at this low single digit growth rate. During this time period, the company’s sales and earnings have grown in lock-step, representing a financially strong company. Additionally, the company pays out a dividend that is the chief reason most investors invest in the company. Currently, the company pays out a quarterly dividend $0.61, or an annual dividend of $2.44, which at the current prices, puts the company’s dividend as yielding 3.99%. This is up from 2011’s annual dividend of $2.40, and is further expected to expand into the future. By 2014, the street anticipates the dividend to reach $2.48. Edison has paid out dividends for 127 years, and has increased this dividend 37 years out of the 127, with an average increase of 4.7%, and there are no upcoming roadblocks that could stop this trend. From this we can see Consolidated Edison’s underlying financial strength, annualized low-single digit growth rate, and massive dividend.

The chart below displays Consolidated Edison’s sales, operating profit, net income, net margin, operating margin, earnings per share, dividend, and rate of dividend (the percentage of net income that paid out in the dividend) over the coming years.

Courtesy of Zonebourse.com

Sustainability & Reliability

Even in the roughest of downturns, the majority of people are still likely to pay for electricity. Utility companies such as Edison are able to pay out the massive dividends they dole out because of the extreme predictability their businesses possess. Consolidated Edison has paid out dividends for 127 years, as for all 127 of those years customers have paid for their electricity. In this electronic world, it is more than an understatement to state that electricity has become a necessity in the modern world. As Edison serves New York City and surrounding areas, it is even further unlikely that customers will drop service, as New York is a city of business. In this volatile economic environment, it is comforting and rewarding to have a company with such predictably and clarity in its future.

Edison is among an elite group of 4.00% yielders. While the company’s dividend currently yields 3.99%, it is considered by many as in this exclusive group. Edison’s dividend is the main reason investors are the stock, as its growth is minimal. However this dividend has been raised nearly every year by the company. The dividend has remained steady through the financial collapse of 2008, and terrorism attacks of 2001. The company’s dividend is immovable, and is a major catalyst for investors. The chart below displays Edison’s dividend in comparison with its stock price over the years.         

Who Is the Industry Trailblazer?

Compared to some of Consolidated Edison’s most prominent competitors, such as: Pepco Holdings (NYSE: POM), Northeast Utilities (NYSE: NU), Northwestern (NYSE: NWE), and FirstEnergy (NYSE: FE), Edison compares reality in-line.

In terms of growth, Northeast is the industry leader, while FirstEnergy is the industry laggard. All companies pay out exceptionally large dividends, with Pepco possessing the largest dividend, and Northeast possessing the fastest growing dividend. In the fundamental ratio comparison, Northwestern is the industry bargain, while Northeast is trading at a premium to its peers. When growth is taken into account, Edison is trading at a premium to its peers, while Northeast is the most reasonably priced. In the net profit margin comparison, Pepco stands out the downside, while Northeast stands out to the upside.

The Foolish Bottom Line

In this volatile economic environment, it is comforting to know that inside your portfolio sits a stable and consistent company such as Edison. The company’s financial strength is impeccable and the company possesses a stable low single digit growth-rate. The company has been paying out a large dividend for 127 years, and should continue to do the same in the coming 127 years. The foolish bottom line is that Consolidated Energy is a tremendous staple of consistently and stableness, and should be in nearly every investor’s portfolio.    

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