Consolidated Edison (ED) expects ordinary earnings and dividend growth for the next few years. Its long dividend payment history and stable growth might attract conservative investors. The stock has been lagging this year. So far, it has fallen more than 8%, while the broader utilities have an average gain of 3% for the year.
Let’s see how Consolidated Edison’s long dividend payment history contributed in terms of total returns over a longer period. In the last year, it returned (including dividends) -5%, and the broader utilities returned 2%. Over the past five years, ED’s total returns were 8%, and utilities (XLU) at large returned 11% compounded annually. So despite its long dividend-increase streak, it underperformed its peers in the past five years due to a weaker market performance.
Total returns from the broader markets were 11% in the last year and ~12% in the last five years compounded annually.
The Fed expects one more rate hike this year. It will be the fourth one in 2018, which could hamper utilities going forward. Rising rates result in higher debt servicing expenses for utilities, which generally dents their profitability. However, since the last rate hike, utilities at large have risen ~5% as investors took shelter in them amid the broader market turmoil. Utilities usually pay stable dividends and have slow stock movements.