Dividend Aristocrats In Focus Part 1: Consolidated Edison, Inc. (ED)

The stock currently has a dividend yield of 3.7%. The S&P 500 has a dividend yield of 2.1% for comparison.

Two things stand out about Consolidated Edison’s dividends:

– Long history of slow growth

– Relatively high yield versus the market average

Consolidated Edison’s last dividend increase was 3.1%. The company has grown its dividends at a compound rate of just 1.5% a year over the last decade. For comparison, inflation has averaged around 1.9% a year over the same time period.

The company’s dividend growth over the last decade leaves much to be desired. Keep reading for the company’s expected growth going forward.

Growth Prospects & Expected Reteurns

While dividends have grown at just 1.5% a year over the last decade, the company’s earnings-per share have grown slightly faster – at 3.1% a year.

Earnings (not earnigns-per-share) actually grew faster. Unfortunately, Consolidated Edison funds part of its growth with share issuances. These issuances have caused a drag on earnings-per-share growth of 1.6 percentage points a year on average over the last decade.

With 95% of earnings coming from the company’s regulated utilities, growth is determined in large part by its rate base growth.

Source:  Consolidated Edison September 2016 Update, slide 24

I expect the company to grow its earnings at around 4% to 5% a year going forward. Continued share issuances will hurt growth. In total, I expect earnings-per-share growth of 2.5% to 3.5% for Consolidated Edison.

This growth combined with the company’s 3.7% dividend yield gives investors expected total returns of around 6% to 7% a year.

The company’s management is targeting a payout ratio of between 60% and 70%. The company’s expected 2016 payout ratio is around 65%. Dividend payments should grow in line with earnings-per-share growth (2.5% to 3.5%) going forward.

Consolidated Edison’s growth prospects may not cause excitement, but the company does offer slow (emphasis on slow) and steady growth. The company’s 42 years of consecutive dividend increases is a sign of a strong and durable competitive advantage.