The insiders don’t hold much of Consolidated Edison, but they are putting their money into the company. The insiders have only bought stock for the last 5 quarters, and before that only bought stock save for a single transaction. That was in February 2022, was made by then and current chairman of the board, and left him as a top-20 holder of the company.
The takeaway is that the operators of this high-yielding utility are confident in its ability to continue paying the distribution, which is backed up by institutional activity. Institutions own about 67% of the stock and have been buying on balance for 5 consecutive quarters. Likewise, they sold in Q1 2022, but before that, the activity was heavily balanced in favor of shareholders.
Consolidated Edison Pays A Healthy Dividend
One reason is the dividend. Consolidated Edison pays a healthy 3.55%, a growing distribution. The company has increased the payment for 50 consecutive years and could continue to do so for the foreseeable future. The payout ratio is on the high side at 62%, but this is not out of sync with the industry.
Utilities have stable revenue and income streams in all market conditions and can pay more of their earnings to investors with less risk than other business types. Consolidated Edison is not growing the distribution quickly, about 2.25% annually, but it is a reliable compounder to the total return.
Consolidated Edison is growing, but growth is slowing from the mid-teens in 2022 to high-single-digits in 2023. The consensus estimate for Q2 is for revenue to decline by 400 basis points, but the company tends to outperform by 200 to 500 basis points, so it may yet produce growth.
The back half of the year will be stronger, and growth will continue into 2024, although at a slower low-single-digit pace. Regardless, earnings growth is expected to continue unabated and to outpace revenue growth this year and next. The takeaway is that earnings growth is sufficient to cover expected distribution increases without negatively impacting the payout ratio.
The Analysts Aren’t Renewing Their Buy Ratings On ConEd
The analysts are not on board with this stock in 2023. The sentiment has drifted lower from Hold to Reduce since the start of the year, but the price target trend contradicts it. The price target has drifted lower since last month, but it s relatively flat compared to Q, implying the stock is fairly valued at $91.50 and is up more than 500 basis points since last year. Continued outperformance could change the analysts’ sentiment; until then, they may weigh on the price action.
The primary reason the analysts are shunning ConEd is its exposure to renewables. The company has limited exposure compared to leaders like NextEra Energy which produces more than 30% of its capacity via wind and solar and has another 20% committed to nuclear. NextEra Energy trades at 23X its earnings for the privilege of its leading role in the transition to green energy; it pays about 2.6% in yield and has been increasing its payout at a more aggressive pace in recent years.
The Technical Outlook: Consolidated Edison Is Range Bound
Shares of Consolidated Edison are under pressure from analysts, but the market is still well-supported. The institutions and insiders have helped to put a floor in the price action at $88.50 that may be tested again before upward movement in the price action can resume. Even so, the price should move sideways within its range for the foreseeable future and may move higher if the company advances into renewable or sustainable energy.