Buy Consolidated Edison For The 4.13% Dividend And Solid Fundamentals
The company was named a top 25 SAFE dividend stock in most recent “DividendRank” report. The dividend has been growing for the past 40 years. Solid fundamentals and a payout ratio of only 64% make the dividend look extremely safe going forward. Consolidate Edison (NYSE: ED ) also known as Con Ed, is one of the largest investor owned energy companies in the United States with nearly $13 billion in revenue and a market cap of $18 billion. The company offers a very nice 4.13% dividend that has been increasing for the last 40 years . The dividend was named a top 25 SAFE dividend by the prestigious “DividendRank” report . While the above may not be a good enough reason to invest the stock buy itself, when paired with the company’s rock solid fundamentals, an overall picture of safety and high yield emerges. The stock is currently trading at 15 times earnings, 1.4 times sales, and 1.4 times book value. These are very conservative numbers that show the stock is fairly valued and has limited downside even in the event of a severe market downturn (which would make the yield go through the roof). In addition to the reasonable price of the stock are the solid profit margin, return on equity, and even revenue growth to go along with it. The company is earning a profit margin of 8.67%, which is about average for the industry. The return on equity is 8.53%, which is a little below average , but still just fine with all of the other aspects of the company performing well. The most recent earnings report even showed quarterly YoY revenue increasing by 1.67%, which means the company is growing, albeit slowly. Furthermore, the payout ratio is only 64%, which is one of the reasons the dividend looks so safe. Most high yielding companies have much higher payout ratios . The great thing about a solid dividend stock like ED is its defensive nature during a bear market. While a rate hike is expected to hurt dividend stocks generally due to the fact that higher interest rates make bonds relatively more attractive, it will take years for rates to gradually return to normal, so the fear of one small hike by the Fed, which may not happen for many more months, is overblown. Furthermore, a utility company like ED is more stable than a typical run of the mill dividend stock, so if you’re worried about a market downturn, you really can’t get any safer than a leading utility company that pays a dividend over 4%. Finally, the stock recently dropped over 5% in one day when it just barely underperformed quarterly earnings expectations (they earned $1.45 a share when the market expected $1.48). I look at this as an opportunity to get some discounted shares rather than a sign that investors should be concerned. This is a good example of the market overreacting negatively to good results simply because they missed expectations slightly. I expect the stock to slowly recover over the next quarter while I collect the nice dividend in the interim.