This article originally appeared on The DIV-Net July 21, 2008.
Linked here is a PDF copy of my detailed analysis of Consolidated Edison, Inc. (ED) (alt.1, alt.2). Below are some highlights from the above linked analysis:
Company Description: Consolidated Edison, Inc., through its subsidiaries, provides electric, gas, and steam utility services in the United States serving parts of New York, New Jersey and Pennsylvania.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
ED is trading at a discount to 1.), 3.) and 4.) above. If I exclude the high and low valuation and average the remaining two, ED is trading at a 14.8% discount. ED earned a Star in this section since it is trading at a fair value.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
ED earned one Star in this section for 3.) above. ED has paid a cash dividend to shareholders every year since 1885 and has increased its cash dividend payment for 35 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
ED earned both available Stars in this section. With a NPV MMA Diff. of $4,321, ED is well above the $3,000 I look for in a company that is both an Achiever and an Aristocrat. ED's current yield of 6.16%, exceeds the 20-year expected MMA rate of 4.61%.
Other: ED is both an S&P 500 Dividend Aristocrat and a member of The Broad Dividend Achievers™ Index. As a regulated electric and gas utility, ED produces a strong and steady cash flows. It has a solid balance sheet, an A- credit rating and operates in a historically supportive regulatory environment.
Conclusion: ED earned a Star in the Fair Value section, earned one Star in the Dividend Analytical Data section and two Stars in the Dividend Income vs. MMA section for a net total of 4 Stars. This quantitatively rates ED as a 4 Star-Buy.
Using my D4L-PreScreen.xls model, I determined the share price could go up to $41.39 before ED's NPV MMA Diff. drops to the $3,000 NPV MMA Diff. I like to see. At that price ED would yield 5.65%. I would be very comfortable adding to my position at the current price of $38.48 and a 6+% yield.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I own shares of ED (2.9% of my Income Portfolio).
What are your thoughts on ED?
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Linked here is a PDF copy of my detailed analysis of Consolidated Edison, Inc. (ED) . Below are some highlights from the above linked analysis:
Recent Stock Analyses:
Read More...
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Linked here is a PDF copy of my detailed analysis of Consolidated Edison, Inc. (ED) (alt.1, alt.2). Below are some highlights from the above linked analysis:
Company Description: Consolidated Edison, Inc., through its subsidiaries, provides electric, gas, and steam utility services in the United States.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description: 1.) Avg. High Yield Price, 2.) 20-Year DCF Price, 3.) Avg. P/E Price and 4.) Graham Number. ED is trading at a discount to 3.) and 4.) above. If I exclude the high and low valuation, and average the remaining two valuations, ED is trading at a 9.9% discount. ED earns a Star for trading at a fair value.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description: 1.) Rolling 4-yr Div. > 15%, 2.) Dividend Growth Rate, 3.) Years of Div. Growth, 4.) 1-Yr. > 5-Yr Growth and 5.) Payout 15% of avg. ED earned a Star in 3.) above. It has increased its dividend for 10+ years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description: 1.) NPV MMA Diff. and 2.) Years to >MMA. ED earned one Star in this section. Its current yield of 5.62% is in excess of the high-yield MMA rate of 4.61%.
Other: ED is both an S&P 500 Dividend Aristocrat and a member of The Broad Dividend Achievers™ Index. It has increased its quarterly cash dividend payments for 34 consecutive years.
Conclusion: ED earned one Star in the Fair Value section, one Star in the Dividend Analytical Data section and one Star in the Dividend Income vs. MMA section for a total of three Stars, which rates it as a 3 Star-Hold.
Back in December I reviewed ED and was quite harsh toward it. My perspective has changed. Tomorrow I will discuss the reason for the change.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I own shares of ED (3.6% of my Income Portfolio).
What are your thoughts on ED?
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Linked here is a detailed quantitative analysis of Consolidated Edison, Inc. (ED). Below are some highlights from the above linked analysis: Company Description: Consolidated Edison, Inc. is an electric and gas utility holding company serves parts of New York, New Jersey and Pennsylvania.
ED is trading at a discount to only 3.) above. When also considering the NPV MMA Differential, the stock is trading at a 14.5% premium to its calculated fair value of $74.14. ED did not earn any Stars in this section. ED did not earn any Stars in the Fair Value section, earned one Star in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of one Star. This quantitatively ranks ED as a...
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Linked here is a detailed quantitative analysis of Consolidated Edison, Inc. (ED). Below are some highlights from the above linked analysis: Company Description: Consolidated Edison, Inc. is an electric and gas utility holding company serves parts of New York, New Jersey and Pennsylvania.
As a regulated electric and gas utility with a focus on power transmission and delivery, ED produces strong and stable earnings and cash flows. New York's need for significant infrastructure should provide growth opportunities for ED, thus supporting long-term earnings and dividend growth. The stock is currently trading above my calculated fair value price of $72.23. ED did not earn any Stars in the Fair Value section, earned one Star in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of one Star. This quantitatively ranks ED as a...
Source: Dividend Growth Stocks
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A well-rounded dividend investment portfolio just doesn't happen by accident. As noted in Charlie Munger’s 10 Rules for Investment Success, “Allocate assets wisely: Proper allocation of capital is an investor’s No. 1 job.” It is human nature to want to jump on the what's hot bandwagon and ignore what is considered boring, like utilities.
Long considered the domain for "widows and orphans", utilities have developed a somewhat stodgy reputation. Why are utilities considered good for widows and orphans? Here a few reasons:
Utilities would be the perfect dividend income investment, except for one thing - they tend to have low dividend growth rates. As such, you wouldn't want a whole portfolio of utilities and you need to be very selective in which utilities are added, and when they are purchased. In my personal allocation, utilities are limited to a maximum of 10% of my portfolio (currently, they make up 3.7% of my total investment portfolio).
In addition to the regular buy criteria, I look for a higher yield when buying utilities, generally greater than 5.5%, but I really prefer around 6%. This eliminates many utilities, but there are still several from my Stock Ideas page that might be worth an additional look. Here is a list of all the utilities that have paid a dividend for more than 25 years and have a yield of 5.5% or greater:
Vectren Corp. (VVC) - 6.23% Yield
This energy holding company, headquartered in Evansville, IN, provides natural gas and electric energy to more than one million customers in Indiana and Ohio. It also offers energy related products and services to customers throughout the Midwest and Southeast. It has increased its dividend for 49 consecutive years. It last increased its dividend in November 2008.
Consolidated Edison (ED) - 6.29% yield
This electric and gas utility holding company serves parts of New York, New Jersey and Pennsylvania. With its February 2009 dividend increase, ED has now increased its dividend for the last 36 consecutive years. (most recent analysis)
Otter Tail Corp. (OTTR) - 6.35% yield
The company produces, distributes and sells electric energy in Minnesota, North Dakota and South Dakota and has interests in health services, manufacturing and other businesses. OTTR missed is normal dividend increase in February 2009. Instead, the company left its dividend flat with 2008. The last time OTTR increased its dividend was February 2008.
Integrys Energy Group (TEG) - 7.27% yield
This utility holding company serves about 485,000 regulated electric and 1,674,000 regulated gas customers. The company also operates an unregulated energy supply and services business. With its February 2009 dividend increase, TEG has now increased its dividend for the last 51 consecutive years. (most recent analysis)
Black Hills Corp. (BKH) - 7.48% yield
This diversified South Dakota-based holding company encompasses electric utility and integrated energy businesses. With its February 2009 dividend increase, BHK has now increased its dividend for the last 40 consecutive years. Prior to this last increase, the company went five quarter with no increase dating back to November 2007.
Of the five utilities listed above, I would not consider OTTR until the future dividend direction can be determined. BKH's late increase is a little concerning, but I could not disqualify it at this time. I own and am currently purchasing TEG and ED as their valuations and my allocations allow.
Finally, looking at current and some historic returns over shorter periods of time, certain utilities have done quite well. Remember, there is a reason the widows and orphans own them.
Full disclosure: Long ED, TEG
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I love to play chess. The strategy, the conflict, the ability to maneuver and attack all invigorates me. There is a great adrenaline rush when when my opponent realizes he is losing and there is nothing he can do about it. Unfortunately, I don't experience this rush often. Though I love to play chess, I am not very good at it. The primary reason for my poor performance is that I love to attack relentlessly. I usually don't play with my head and end up making bad moves.
A strong bias for action. That's what my HR professionals tell me I have. It is not always a bad thing. We are the doers, the ones that get things done and, unfortunately, we are the ones also that sometimes dramatically crash and burn. The latter is what often scares some to inaction. I work with managers (and executives) that have a hard time pulling the trigger and making a decision, then executing.
As noted in yesterday's Consolidated Edison (ED) stock analysis, my perspective toward this stock has changed. Back in December when I reviewed ED, I was quite harsh toward it and made statements such as "ED is not a stock I want to hold in my portfolio" and "I do (embarrassingly) own shares of ED". I was about to rip the whole investment out by its roots and rid my portfolio of it. Then I stopped, and thought, why did I buy it in the first place. It was a safe investment that would act as a counter-balance to some of my more riskier investments. I did not allow myself to sell anymore after that. Given its valuation in December it was not a good buy then, but I would buy it today if my allocation needed it.
As mentioned in Saturday's post "Time is My Friend", I have determined I want to own three to four banks in my portfolio. That means I need to divest two or three stocks. I will over-come my urge for action and patiently wait until it is evident which stocks should be divested. In the same vein, I have determined that I need to own two or three utilities. I will look for good buying opportunities to add to my positions, when appropriate, and evaluate the possibility of adding a third utility to my portfolio. Good things will come to those who wait (and think while they are waiting).
Checkmate!
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Part of my kids' college fund is invested in Vanguard's S&P 500 Index Fund (VFINX). When I opened the October statement, I was mildly surprised to see the net asset value had fell below the September 1997 level when the account was first opened. Over the year I have become somewhat disenchanted with mutual funds, ETFs and CEFs due to their recent poor performance relative to my dividend investments.
So what would have happened if I had invested my kids' college fund following a dividend investing strategy? It is difficult to say exactly, but I can make some assumptions and see where it takes me.
Ground Rules
For simplicity, I will select five dividend stocks and purchase $1,000 in each and put $5,000 in VFINX using the closing price on September 30, 1997. Dividends will be held and reinvested on the last day of the year at the closing price. I will ignore commissions and taxes. Final valuation date is as of the end of November 2008, except for BAC (see below). Information was pulled from Yahoo Finance.
Stock Selection
This obviously is the most difficult portion and requires the most self-honesty. I will try to reason what stocks I would have purchased in 1997 without looking at their performance. Since it was for my kids' education, I intentionally avoided the more risky stocks, including REITs. Here are the five stocks I selected and my thoughts as to why:
One other stock I considered was General Electric (GE). However, in the late 90's I viewed it more as a growth stock. Let's build the spreadsheet and crunch some numbers.
Results
First let me say that there is nothing definitive you can draw from this analysis - the scope is much too narrow. However, there are some interesting items to consider that could lead to a deeper analysis. With that said, I was somewhat surprised at the results. It was not a good decade for any of the investments that I looked at. The ones I thought would perform well, did not. Here is a summary of the S&P and the five dividend stocks:S&P 500 (VFINX)
The dividend stocks earned more dividends than the S&P, but also lost more on invested capital. Overall, the return for the dividend stocks was a little over a quarter percentage point higher than the S&P 500. That somewhat surprised me; I expected it to be more. Looking at the individual stocks was quite interesting and not entirely what I expected:
Appreciation as a % of Invested Basis: -10.44%
Total Shareholder Return: 0.90%
Total Dividends Reinvested: $1,168.53
Dividend Stocks In Total
Appreciation as a % of Invested Basis: -13.10%
Total Shareholder Return: 1.25%
Total Dividends Reinvested: $1,609.95Johnson & Johnson (JNJ)
To be honest, I was surprised at how weak JNJ's and PG's performance were over the period. The entire performance of the group was carried by ED. With a -4.35% TSR, BAC actually held up better than I thought it would.
Appreciation as a % of Invested Basis: -0.12%
Total Shareholder Return: 1.47%
Total Dividends Reinvested: $177.96
Procter & Gamble Co. (PG)
Appreciation as a % of Invested Basis: -7.41%
Total Shareholder Return: 0.46%
Total Dividends Reinvested: $136.52
The Coca-Cola Company (KO)
Appreciation as a % of Invested Basis: -20.77%
Total Shareholder Return: -0.73%
Total Dividends Reinvested: $163.21
Bank of America (BAC)
Appreciation as a % of Invested Basis: -52.09%
Total Shareholder Return: -4.35%
Total Dividends Reinvested: $270.61
Consolidated Edison, Inc. (ED)
Appreciation as a % of Invested Basis: 6.61%
Total Shareholder Return: 6.33%
Total Dividends Reinvested: $861.66
What If..
One case I looked at was substituting BBT for BAC. BBT's performance was better than BAC's but not dramatically. Here are the combined results with BBT in place of BAC:Dividend Stocks In Total - BBT instead of BAC
Conclusion
Appreciation as a % of Invested Basis: -10.05 vs. -13.10%
Total Shareholder Return: 1.56% vs. 1.25%
Total Dividends Reinvested: $1,610.91 vs. $1,609.95
Contrary to my earlier statement, one valid conclusion can be drawn from this exercise. You should always analytically test your beliefs, because they may not holdup under the microscope.
If you want to see the spreadsheet I used to derive the above data, it is available on my Tools page as Div-Investing-vs-SandP.xls.
Full Disclosure: Long VFINX, PG, JNJ, KO, PEP, BBT and ED
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Looking for a safe place to hide from the market pullback and collect some dividends in the meantime? We went looking for Mr. Market's favorite dividend paying stocks over the past month and in 2016, and, no surprise, utilities have been getting more support than the lion's share of other dividend stocks.
NY area-based Consolidated Edison (NYSE:ED) is leading all electric utilities stocks year-to-date - it's up 3.75% vs. a -5.87% loss for the S&P, and is among the top five performing electric utilities over the past month. It also held its value better than the S&P over the past year and is up 8.62% over the past trading quarter. These figures don't even include ED's dividends. If you're looking for relative safety in volatile times, ED sports a very low beta of just .13.
Source: Seeking Alpha
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In an utopian world, the perfect dividend stock would be one that is both high-yield and provide a high dividend growth rate. Its share price would appreciate ratable with its increasing dividend. All of this would be driven by increasing earnings and cash flow. Ok, so much for my fantasies, the perfect dividend stock just may be a balanced compromise. Consider the following:
High Yield/Low Dividend Growth: When investors first consider dividend investing, High Yield is where they usually go first. I guess it is human nature to want it now and want a lot of it. Unfortunately, high yield stocks often carry higher than average risk - there is usually a reason that the stock yield is higher than average. It could be because the company is in a limited growth industry, is in a volatile industry, experienced recent financial problems and its share price has fallen, or shareholders perceive future financial problems. I have set aside a small portion of my portfolio to invest in these types of stocks. Examples of these stocks would include:
Low Yield/High Dividend Growth: After being burned on an over-allocation of high yield stocks, would be dividend investors normally start reading-up on the subject. The first thing that they learn is that Dividend Growth is more important than Dividend Yield. While Dividend Yield will stroke you today, Dividend Growth is much more important to long-term wealth creation. Companies in this category tend to be well established, dominate in their market and in industries less affected by cyclical geopolitical factors. However, it is important to note that these stocks carry a different kind of risk. Since your long-term return is dependent on the companies increasing their dividends over many years in the future, there is a real risk of something occurring that would prevent them from executing their strategy. Examples of these stocks would include:
Moderate Yield/Moderate Dividend Growth: This is a category that is not often discussed since most dividend investors focus on the other two categories above. I would classify stocks in this category with yields from 3.5% to 8.0% and a dividend growth rate between 5% and 15%. For some this defines the perfect dividend stock - good current payment with good future opportunity for growth. These companies' stories are varied. For some, they would normally reside in one of the other two categories, but hit a bump in the road. For others they normally reside here due to their growth and risk profile. Examples of these stocks would include:
As with all investments, risk can never be eliminated. However, to minimize risk I employ an asset allocation model. In addition, I limit my investments in each of the above categories.
The dividend growth rates quoted above are the average annual rates from 1998-2007.
Full Disclosure: At the time of this writing I was long in FR, ED, AFL, CNI, GE and USB.
(Photo: sanja gjenero)
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Looking to replace some missing income from slashed dividends? You may want to consider selling options. Trading strategies such as writing covered calls and selling cash secured puts began to gain more traction in the 2008-2009 market meltdown, when previously dependable dividend-paying stocks began cutting their dividends. Flash forward 12 years to the 2020 COVID-19 crash, and we're seeing that scenario play out again.
If you want to play it conservatively, maybe consider selling options on large cap, well known stocks, such as one of the Dividend Aristocrats, for example. Consolidated Edison, Inc. (ED) was founded in 1884, and is a member of the Dividend Aristocrats, having raised its dividend for 46 consecutive years. It has three areas of operation - Utilities, Transmission, and Clean Energy. Con Ed yields 4.26% and will go ex dividend ~8/13/20 for $.756. An August out of the money covered call option trade yields 2.5% in five weeks, or over 25% annualized.
Source: Seeking Alpha
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I have been using my new evaluation model now for about a month now. So far, I have been quite pleased with the results. It is helping me to efficiently review a lot of dividend stocks and identify those with strong financials, that are likely to continue increasing their dividends and that are fairly priced. As I was developing and testing the new model I noticed it had a distinct dislike of Real Estate Investment Trusts (REITs) and utilities.
This got me to looking at these classes of stocks and asking the fundamental question, 'Are they really quality dividend investments?' Sure both are known to have above average yields, but as any knowledgeable dividend investor will tell you, current yield is just one small part of what makes up a great dividend stock.
I currently own three utilities and three REITs. In addition to those, I follow three other utilities and three other REITs. Let's take a look at some of them and determine if they are good dividend investments:REITs
For a company to consistently raise its dividends, it must generate strong free cash flows sufficient enough to meet other obligations, such as debt, before paying a dividend. I look for a maximum of 45% Debt to Total Capital and a maximum of 60% Free Cash Flow Payout with the last 10 years positive.
Health Care Property Investors Inc. (HCP) - 0 Stars
Debt to Total Capital: 52%
Free Cash Flow Payout: 131%
Realty Income Corp (O) - 0 Stars
Debt to Total Capital: 47%
Free Cash Flow Payout: -65%
Federal Realty Investment Trust (FRT) - 2 Stars
Debt to Total Capital: 51%
Free Cash Flow Payout: 101%
Kimco Realty Corporation (KIM) - 2 Stars
Debt to Total Capital: 55%
Free Cash Flow Payout: -1753%
National Retail Properties, Inc. (NNN) - 4 Stars
Debt to Total Capital: 39%
Free Cash Flow Payout: -144%
Utilities
SJW Corp. (SJW) - 0 Stars
Debt to Total Capital: 49%
Free Cash Flow Payout: -94%
Progress Energy, Inc. (PGN) - 1 Stars
Debt to Total Capital: 56%
Free Cash Flow Payout: -36%
Atmos Energy Corporation (ATO) - 1 Stars
Debt to Total Capital: 54%
Free Cash Flow Payout: 1045%
Black Hills Corp. (BKH) - 2 Stars
Debt to Total Capital: 48%
Free Cash Flow Payout: -105%
Integrys Energy Group, Inc. (TEG) - 3 Stars
Debt to Total Capital: 18%
Free Cash Flow Payout: -47%
Consolidated Edison, Inc. (ED) - 3 Stars
Debt to Total Capital: 52%
Free Cash Flow Payout: -40%
With the exception of NNN and TEG, each of the above companies failed the Debt to Total Capital and Free Cash Flow Payout tests. NNN and TEG passed the Debt to Total Capital test while failing the Free Cash Flow Payout test. All the above companies had multiple years of negative FCF over the last 10 years thus their dividends are supported via non-operating cash such as debt issuances and property sales. Ironically, NNN was the only 4 Star stock and it just recently froze its dividend.
Most REITs and utilities may provide your income portfolio with an additional boost in yield, but may end up costing you more in the long run. I will continue to look at REITs and utilities, but they must measure up like any other stock.
Full Disclosure: Long HCP, O, NNN, PGN, TEG, ED. See a list of all my income holdings here.
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Each month the Wealth, Money & Life Network chooses a topic for that month's theme. Since our members are a diverse group, the selected topic is usually broad, allowing each of us an opportunity to address it from our perspective. This month, Missed Opportunities was selected as our topic.
When most people hear the phrase "missed opportunities" they tend to reflect on past events and what could have been. By nature I am forward looking, so "missed opportunities" for me is the present and the future.
At some point in the future will we look back on our actions today and refer to them as our greatest missed opportunity? There is a lot of fear today. Fuel prices have soared driving up the prices of everything that is transported. The economy is slowing and some fear that they may lose their jobs. Many are posturing themselves in a defensive stance, moving money out of equities into cash and bonds. With that, consider the following stocks (data as of mid-day 8/27/08):
AFLAC Inc (AFL): Its average P/E and dividend yield between 1998 and 2007 was 18.8 and 0.95%, respectively. It is currently trading with a P/E of 14.8 and a dividend yield of 1.79%.
BB&T Corporation (BBT): Its average P/E and dividend yield between 1998 and 2007 was 15.8 and 3.30%, respectively. It is currently trading with a P/E of 9.1 and a dividend yield of 6.66%.
Consolidated Edison, Inc. (ED): Its average P/E and dividend yield between 1998 and 2007 was 14.5 and 5.47%, respectively. It is currently trading with a P/E of 10.0 and a dividend yield of 5.69%.
General Electric (GE): Its average P/E and dividend yield between 1998 and 2007 was 25.4 and 2.24%, respectively. It is currently trading with a P/E of 13.2 and a dividend yield of 4.39%.
Johnson & Johnson (JNJ): Its average P/E and dividend yield between 1998 and 2007 was 23.9 and 1.77%, respectively. It is currently trading with a P/E of 17.1 and a dividend yield of 2.60%.
Lowe's Companies, Inc. (LOW): Its average P/E and dividend yield between 1998 and 2007 was 22.0 and 0.37%, respectively. It is currently trading with a P/E of 14.0 and a dividend yield of 1.38%.
Sysco Corp (SYY): Its average P/E and dividend yield between 1998 and 2007 was 26.4 and 1.48%, respectively. It is currently trading with a P/E of 17.4 and a dividend yield of 2.79%.
By most measures, many blue-chip stocks are trading at a historical discount. Are you going to buy now or pay full-price or a premium price later? Unlike the perpetual going-out-of-business sale at the local furniture store, this sale will end suddenly and without warning.
Full Disclosure: Long in AFL, BBT, ED, GE, JNJ and SYY.
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Toward the end of last year, I introduced a different periodic table. Instead of plotting yield vs. dividend growth rates, as I had in prior tables, I plotted yield vs. credit ratings. The idea was to identify high quality Dividend Champions with higher yields. The idea this time is similar. Except now I have a new tool that rates dividend safety.
Obviously, the reliability and predictability of dividends are very important factors when you are using dividend growth investing to provide growing income and/or good total returns. One stock jumped out at me as having an unexpected D rating: Consolidated Edison (NYSE:ED). I contacted Marc Lichtenfeld, the Chief Income Strategist for the Oxford Club. He told me that ED gets a D because of high payout ratios (270% and an expected 307% this year on free cash flow) and declining free cash flow growth.
Source: Seeking Alpha
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It's hard to find high yields in today's low-rate environment. But it's not impossible. In fact, here are three high-yield stocks that pay you each quarter through thick and thin. If you are in the market for dividends, you should take the time to look at...
The AT&T (T) of today isn't really the AT&T of old. There are many reasons for that, but one of the biggest is that it's shifted its focus from landlines to cellular telephone service. You probably know Consolidated Edison (ED) by its nickname, Con Ed. It provides electric services to roughly 3.3 million customers and gas services to 1.1 million across New York City and Westchester County, which is just north of the Big Apple. The last company to look at is Helmerich & Payne Inc (HP). This isn't a good choice for investors with weak stomachs, because the company is in the oil and gas services business.
Source: Motley Fool
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#10 Chubb Corp. (CB) One of the largest U.S. property-casualty insurers, Chubb has carved out a number of niches, including high-end personal lines and specialty liability lines coverage.
Paid since: 1902 | Consecutive increases: 45 | Yield: 2.92%
#9 PPG (PPG) is a leading manufacturer of coatings and resins, flat and fiber glass, and industrial and specialty chemicals.
Paid since: 1899 | Consecutive increases: 36 | Yield: 3.55%
#8 Colgate-Palmolive Company (CL) is a consumer products company, whose products are marketed throughout the world. Colgate’s Oral Care products include toothpaste, toothbrushes, oral rinses, dental floss and pharmaceutical products.
Paid since: 1895 | Consecutive increases: 45 | Yield: 2.13%
#7 The Coca-Cola Company (KO) is the world's largest soft drink company. It engages in the manufacture, distribution, and marketing of nonalcoholic beverage concentrates, fruit juices and syrups worldwide.
Paid since: 1893 | Consecutive increases: 47 | Yield: 3.02% | [Analysis]
#6 The Procter & Gamble Company (PG) is focused on providing branded consumer goods products. The Company markets its products in more than 180 countries.
Paid since: 1891 | Consecutive increases: 53 | Yield: 2.92% | [Analysis]
#5 UGI Corp. (UGI) operates propane distribution, gas and electric utility, energy marketing and related businesses through subsidiaries.
Paid since: 1885 | Consecutive increases: 23 | Yield: 3.20%
#4 Consolidated Edison, Inc. (ED), through its subsidiaries, provides electric, gas, and steam utility services in the United States serving parts of New York, New Jersey and Pennsylvania.
Paid since: 1885 | Consecutive increases: 36 | Yield: 5.42%
#3 Eli Lilly and Company (LLY) discovers, develops, manufactures and sells prescription drugs that offers a wide range of treatments for neurological disorders, diabetes, cancer, and other conditions. The company also sells animal health products.
Paid since: 1885 | Consecutive increases: 42 | Yield: 5.52% | [Analysis]
#2 Exxon Mobil Corp. (XOM) is engaged in the exploration, production, and sale of crude oil, natural gas, petroleum products and petrochemicals. XOM is the world's largest publicly owned integrated oil company.
Paid since: 1882 | Consecutive increases: 27 | Yield: 2.51%
#1 Stanley Works (SWK) is a worldwide producer of tools, hardware and specialty hardware for home improvement, consumer, industrial and professional use.
Paid since: 1877 | Consecutive increases: 42 | Yield: 2.44%
A strong dividend culture is a great place to start looking, but before buying we must also consider other factors such as: dividend fundamentals, ability to cover their dividend and fair value.
Full Disclosure: Long KO, PG, ED, LLY. See a list of all my income holdings here.(Photo Credit)
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Utilities have been busy this week, making moves to maximize profit potential. With bigger dividends, Obama's new climate change policy, natural gas investments, and more, here's what you need to know to stay on top of your dividend stocks' latest moves. Consolidated Edison (NYSE: ED ) announced earlier this week that it plans to spend around $100 million extending its New York City natural gas infrastructure. The decision is based on a variety of factors but can be most directly linked to environmental regulation compliance and cheaper costs for both Con Ed and customers.
Edison International (NYSE: EIX ) isn't helping employment numbers this summer -- or this year, even. The utility announced Wednesday that it is laying off 1,100 workers as it begins its decommissioning of the San Onofre nuclear plant in California. After President Obama announced his latest climate change policy, utilities responded with an open letter via the Edison Electric Institute. Although the association of shareholder-owned electric companies agreed with many of the president's points, it stressed its concern over Obama's inclusion of existing power plants in future regulations. EEI President Tom Kuhn made clear that environmental policies geared toward existing plants should contain "achievable compliance limits and deadlines," should "minimize costs to customers," and should be "consistent with the industry's ongoing investments to transition to a cleaner generating fleet and enhanced electric grid."
Source: Motley Fool
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High-yield investing often carries a greater degree of risk than I am willing to accept. Recently, a reader alerted me to an article describing a 20-year study by the Schwab Center for Financial Research demonstrates that investments with the highest yields don't necessarily provide the highest returns and offers a safer way to implement a high-yield approach. Here are some key excerpts from the article:
Since the article was very Schwab specific, I tried to generalize the above screen. If you have a Schwab, please refer to the article for more specific instructions.
So, what does all this mean? If you are an income investor that enjoys trading instead of buy and hold, then this may be something you want to explore further. However, the 11.5% earned with this strategy vrs. the 10.73% for dividend stocks not in the highest yielding group hardly seems worth the effort.
For me, I will continue to focus on high-quality dividend stocks at lower, but growing, yields. However, for those looking to bump their yield a little, below are several Dividend Aristocrats and Achievers that are currently yielding more than 5%:
CenturyLink Inc. (CTL) - Aristocrat - Yield: 8.6%
Lilly Eli & Co. (LLY) - Aristocrat - Analysis -Yield: 6.0%
Integrys Energy Group Inc. (TEG) - Aristocrat - Yield: 7.8%
Consolidated Edison Inc. (ED) - Aristocrat - Yield: 5.8%
Progress Energy Inc. (PGN) - Achiever - Analysis - Yield: 6.5%
Realty Income Corp (O) - Achiever - Yield: 7.1%
Health Care Property Investors, Inc. (HCP) - Achiever - Yield: 6.8%
Cincinnati Financial Corp. (CINF) - Aristocrat - Yield: 6.2%
Leggett & Platt Inc. (LEG) - Aristocrat - Analysis - Yield: 5.7%
Pitney Bowes Inc. (PBI) - Aristocrat - Yield: 6.0%
AT&T Inc. (T) - Achiever - Yield: 6.2%
Black Hills Corp. (BKH) - Achiever - Yield: 5.8%
Capital City Bank Group (CCBG) - Achiever - Yield: 5.6%
Universal Health Realty Income Trust (UHT) - Achiever - Yield: 7.5%
This by no means is an endorsement of the above stocks. If you are looking for high-yields, you might lower your risk some by looking at a pool of stocks that have a long history of increasing their dividends.
Full Disclosure: Long CTL, LLY, TEG, ED, PGN, O, HCP . See a list of all my income holdings here.
(Photo: Steve Woods)
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What's the difference between a Ponzi scheme and a utility company? Before I answer that question, let's look at what a Ponzi scheme is. Wikipedia defines it as:A fraudulent investment operation that pays returns to separate investors from their own money or money paid by subsequent investors, rather than from any actual profit earned. The Ponzi scheme usually entices new investors by offering returns other investments cannot guarantee, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going.
In effect, a Ponzi scheme pays yesterday's investors with money from today's investors. It works great until there aren't enough new investors to pay the old investors. In a similar manner, most utility companies rely on new capital either in the form of debt or equity to fund investment and to pay dividends. Consider the following:
Atmos Energy Corp. (ATO) - Yield: 4.88%
Shares Outstanding: 2000 31m; 2009 92m
Long-Term Debt: 2000 363.2m; 2009 2,159.5m
Years of Negative Free Cash Flow: 5 of 10
Black Hills Corp. (BKH) - Yield: 5.10%
Shares Outstanding: 2000 22m; 2009 38m
Long-Term Debt: 1999 160.7m; 2008 719.2m
Years of Negative Free Cash Flow: 7 of 10
Connecticut Water Service Inc. (CTWS) - Yield: 4.01%
Shares Outstanding: 2000 7m; 2009 8m
Long-Term Debt: 1999 65.4m; 2008 92.2m
Years of Negative Free Cash Flow: 5 of 10
California Water Service Group (CWT) - Yield: 3.29%
Shares Outstanding: 2000 15m; 2009 20m
Long-Term Debt: 1999 156.6m; 2008 373.5m
Years of Negative Free Cash Flow: 10 of 10
Consolidated Edison, Inc. (ED) - Yield: 5.52%
Shares Outstanding: 2000 212m; 2009 276m
Long-Term Debt: 2000 5,415.4m; 2009 9,854.0m
Years of Negative Free Cash Flow: 6 of 10
MGE Energy Inc. (MGEE) - Yield: 4.40%
Shares Outstanding: 2000 16m; 2008 22m
Long-Term Debt: 1999 148.6m; 2008 272.5m
Years of Negative Free Cash Flow: 7 of 10
Middlesex Water Co. (MSEX) - Yield: 4.31%
Shares Outstanding: 2000 10m; 2008 13m
Long-Term Debt: 1999 82.5m; 2008 118.2m
Years of Negative Free Cash Flow: 10 of 10
Progress Energy, Inc. (PGN) - Yield: 6.48%
Shares Outstanding: 2000 157m; 2008 260m
Long-Term Debt: 1999 3028.6m; 2008 10,659.0m
Years of Negative Free Cash Flow: 5 of 10
Integrys Energy Group, Inc. (TEG) - Yield: 6.17%
Shares Outstanding: 2000 26m; 2008 76m
Long-Term Debt: 1999 634.5m; 2008 2,396.7m
Years of Negative Free Cash Flow: 10 of 10
Each of the above companies are growing their debt and shares outstanding while generating insufficient cash to fund their operating expenses, including normal capital replacements, in at least 5 of the last 10 years. For a company to consistently raise its dividends, it must generate strong cash flows sufficient to meet operating obligations and to service outstanding debt. When the day comes that these companies can not raise enough capital to fund the operating requirements, the first source of additional cash will likely come in the form of a lower or eliminated dividend.
So, back to the original question, what is the difference between a Ponzi scheme and a utility? The answer is simply disclosure. All the above information on these companies was made available via S.E.C. filings. Unlike Bernard Madoff, these companies are telling you exactly what they are doing, thus there is no intent to defraud. I own some of the companies above, but I won't be rushing to add to increase my positions.
Caveat emptor!
Full Disclosure: Long ED, PGN, TEG. See a list of all my income holdings here.
(Photo Credit)
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Like compound interest, reinvested dividends will earn "dividends on dividends", but it doesn't stop there. In addition, great income stocks grow their dividends each and every year, so that means your dividends are growing even if they were not reinvested.
As our detractors like to point out, there is a dark cloud that hangs over dividend stocks in the form of income taxes. Each year the government has their hand out wanting their cut of our dividend income. For most investors in the U.S. investing in stocks with qualified dividends the tax is limited to 15%. But still that is 15% that can't be reinvested.
One way to minimize the negative effect of taxes is with the use of tax advantaged accounts, such as a Roth IRA, to house a portion of your income portfolio. The beauty of using your Roth IRA as a income investment account it that you will never have to pay taxes on the dividends earned. Avoiding the taxes will have a significant affect on your account balance over time.
Consider a hypothetical case where $3,000 is used top purchase three stocks each year for 10 years in a Roth IRA and a taxable account. The accounts are opened on the last trading day of 2008 and dividends and the the year's contribution are reinvested on the last day of the year. I selected three dividend companies, Chevron Corp. (CVX) - Analysis, Consolidated Edison Inc. (ED) and Genuine Parts Co. (GPC) - Analysis, that grew dividends over the last 10 years. Here are the results of the analysis:
The use of of a tax advantaged IRA saved this hypothetical portfolio $1,169.46 or 3.02%. Over time this difference would continue to grow, and would be quite substantial for a person that opened a Roth IRA in their 20's and held it 40+ years into their 60's at retirement.
Click here to see the spreadsheet used to generate the above results.
Full Disclosure: Long CVX, ED, GPC. See a list of all my income holdings here.
(Photo: Photo Credit)
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