Tuesday, January 24, 2012

Dividend Machine Con Ed January 23, 2012

Consolidated Edison – Rock Solid Dividends

Con Edison Plant on the East River - Viewed fr...
Con Edison Plant on the East River - Viewed from Greenpoint, Brooklyn (Photo credit: ChrisGoldNY)
             My Dividend Machine for this week, January 23, 2012 is an electric utility well known by income investors.  It has a fantastic history of making more money over time and of paying out more dividends over time.  As a matter of fact Consolidated Edison (ED) has increased the dividend every year for the past 37 years.  

I call it a rock solid Dividend Machine; others consider ED the ideal investment for widows and orphans.   Although I must say that I know a lot of widows who know how to invest,  but you get the point.  

ED is a stock worth looking at for the income producing portion of your portfolio.  Let’s look at the details.

Today, ED is trading around $58.62.  If you own it by February 13, 2012 you will receive the quarterly dividend of $.605 on March 15, 2012.   The annualized yield is 4.128 percent ($.605 times 4 payments divided by the cost basis of $58.62.)   This yield easily surpasses our hurdle of a three percent minimum annual dividend yield.   With ED’s history of raising the dividend for 37 years, the dividend analysis suggests this company is a reliable dividend payer and one would expect the dividend to increase in future years.

Earnings, as you know, must be greater than the dividend in order for a company to be considered a Dividend Machine.   The last four quarters of earnings per share for ED have been $3.71 per share well above the payout.  Moreover, they have increased earnings consistently.  I do not require a history of earnings increases in my four criteria for inclusion as a Dividend Machine, but it is nice to see that history.  This all means that ED has a lot of wiggle room should some event occur that reduces their earnings.  In other words, they should be able to continue to pay you income.

The final hurdle for a Dividend Machine is the balance sheet.  We use D/E ratio (debt to equity ratio) to determine overall safety of a Dividend Machine.  The last event we want is one of our companies goes out of business.  Few companies with a manageable D/E ratio go out of business.  We want a D/E ratio of 1 or less or within the range of the industry.   ED like all utilities needs a lot of money to operate and to buy and build facilities and equipment.  Their D/E ratio of .92 is very acceptable.


While I would love to find 48 Dividend Machines that also have covered call income potential, few utilities have that added income potential.  This is true of ED as well.  However, with such a healthy dividend and such as strong dividend history, I feel comfortable owning this Dividend Machine and think you should consider it for your portfolio.

Very Truly Yours,

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