Dividend Farming Scorecard: Consolidated Edison (ED)

Consolidated Edison - Utility

Yesterday I posted a Scorecard for Target, based upon an initial review three weeks ago when I built cards for Archer-Daniels-Midland (ADM) and Walgreens (WBA).  During that week in mid-May I also looked at Consolidated Edison as a possible add to the Dividend Farm.  Below is an updated card for ED.

The table provides a snapshot of factors I’m scoring for ED as of June 6, 2019.  Laying out my analysis helps me benchmark a holding or opportunity against target metrics.  It also allows me to quickly compare this firm to alternatives as part of my screening process.

FACTOR	METRICS	ED
CCC List	Champion	Champion
Current Yield	4.0%	3.39%
Company Profile	Red Flags?	Utility
Industry Leadership	Top 10	#9 in U.S.
Market Cap	$10 B+	$29.8 B
P/E	< 20	20.49
P/B	< 2	1.68
Debt / Equity	< 1	2.2
Dividend History (Years)	25	45
12 Month Price Range	Lower Half	100th Percentile
Dividend Payout Ratio	< 75%	66.2%
Portfolio Weight	Under to Slightly Over	Over

CCC List: The DRIPinvesting.org web site provides the list of Champions, Contenders, and Challengers where I normally start.  Consolidated Edison is a Dividend Champion with 45 consecutive years of dividend growth.  It’s a strong record well above my 25 year minimum.

Current Yield:  ED’s yield is 3.39% which is below my desired target by roughly 15%.  As usual, this is not entirely a deal-breaker, but it means other metrics should be solid to remain in contention.

Company Profile:  ED seems to be a perennial favorite for utility investors judging by the frequency with which publications cover it.  Based on that specious and subjective metric, one would think it’s larger than #9 in the U.S.

Industry Leadership:  ED is the #9 utility in the U.S. by revenue at $27.3B per Statista.

Market Capitalization:  With a market cap approaching $30 B, ED is 3 times my minimum target size which is good.  Other utils are larger, but not all are Dividend Champions.

Price to Earnings:  The trailing P/E is barely above my maximum of 20, but outside the line is still outside the line.  In a vacuum, this is also not a show-stopper, but it increases the pressure on the other metrics to show well.  At 20 times earnings, the expected return is 5%.  I don’t want it to go lower.

Price to Book:  The P/B ratio of 1.68 is within my target range.  As an investor, I would still be paying for good will, but not an exorbitant amount given the kind of moat utilities have within their territories.

Debt to Equity:  Debt to equity is almost 2.2x my max.  Not promising but not completely unexpected for an infrastructure or capital asset-heavy entity like a utility.   

Dividend History:  Growing dividends for 45 years is quite solid.  With minimum Champion range starting at 25 years, 45 is respectable for value investors like this Dividend Farmer.  ED’s dividend growth rate isn’t spectacular but has nearly doubled on an annualized basis over the past ten years moving from 2% to 3.6%. 

Price Range:  The price is at the 100^th percentile of its trailing 12-month (TTM) range.  Today ED closed at a 12-month high after climbing nearly 20% since late January.  Great for those who got in around the first of the year, but currently far from bargain territory.

Payout Ratio:  The payout ratio of 66.2% is under my 75% target ceiling.  ED has room to grow its dividend but not nearly as much as alternatives I’ve reviewed.  The ratio may also explain the low annual dividend growth rate (DGR). 

Portfolio Distribution:  ED would be a new holding in my basket adding to a somewhat overweight sector.  Adding ED would push me further into the utility heavy zone, which isn’t favorable.  Then again, having a lot of dividend stability isn’t always a bad thing.

Analysis  

Of the companies reviewed the past several months Consolidated Edison is a reasonable possibility.  Had I picked it up in January, the price run would have been a nice mid-year gift.  However, at the very top of its 12-month range probability indicates it’s more likely to go down than up.  Depending on the size of a possible decline, the P/E could fall back into my range potentially improving two of the metrics (P/E and price) sufficiently to make ED a solid add to the Dividend Farm.  I’ll keep an eye on it.  Who knows, Con Ed may fall back to a January-ish price range making it a buy again.

The thoughts expressed here are those of the author, who is not a financial professional.  Opinions should not be considered investment advice.  They are presented for discussion and entertainment purposes only.  For specific investment advice or assistance, please contact a registered investment advisor, licensed broker, or other financial professional.