Sector: Utilities
Dividend yield: 3.5%
Regulated utilities are often a core component of most defensive income portfolios, and for good reason. These businesses are essentially government-sanctioned monopolies, typically operating as the sole service provider in their territories.
However, to ensure their infrastructure is reliable and their prices remain reasonable for customers, utility operations – including allowed returns on equity – are regulated at the state level. As long as regulators maintain constructive relationships with a utility and the utility delivers its projects on time and on budget, these businesses generate extremely reliable cash flow streams.
Consolidated Edison (ED, $79.00) is no exception. The firm provides electric service to about 3.3 million customers and gas service to another 1.1 million consumers and businesses located around New York City.
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ConEd’s operational expertise and healthy relationship with regulators has allowed it to increase dividends for 44 consecutive years, recording 3% annual payout growth over the past five years. Argus analyst Jacob Kilstein, CFA, maintains a long-term annual earnings growth rate estimate of 3% for the utility, so a similar pace of dividend growth can likely be expected going forward.
Kilstein also writes that Consolidated Edison “continues to benefit from a solid capital expenditure program, strong cost controls, positive economic conditions in its service territory, and conversions from oil to gas heat.”
Consumers and businesses continue to need electric and gas power through all manner of economic environments too, and Consolidated Edison will be there to provide it for them, delivering higher dividends to shareholders along the way.
