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Why Consolidated Edison Is a Dividend Investor's Dream

Let's face it: Utilities are no one's idea of an exciting class of stocks. This is perhaps why Consolidated Edison (NYSE: ED) seldom makes investors' lists of top 10 picks.

That's too bad, because it's not only one of the most well-positioned operators in its industry, it's a rock-steady and reliable dividend payer. I'd even go so far as to say it's everything an income investor could hope for in a stock.

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The core business of "Con Ed" as it's known to its customers, is the supply of electricity, natural gas, and even steam to customers in New York City. The company's electricity and gas also make their way to the city's affluent neighbor to the north, Westchester County.  

IMAGE SOURCE: GETTY IMAGES

It's the top provider electricity provider in New York state. This is largely because it dominates the crucial New York City market -- a prize for any utility, as the municipality is home to over 8.5 million souls.

Con Ed's rates are www.fool.com/investing/2017/02/26/3-stocks-you-dont-have-to-..." target="_blank">decoupled, which is why its top line doesn't move around much. On an annual basis, across the last five years, it has ranged from just over $12 billion in 2016 to nearly $12.9 billion in 2014.

Net income is a different story. As a decoupled utility, Con Ed is able to take advantage of its own efficiencies to improve its bottom line. Again on an annual basis, net profit has steadily improved since 2013, rising from $1.09 billion that year to nearly $1.25 billion last year.

A big concern regarding traditional utilities these days is the rise of renewable energy, which is considered a threat to older forms of power generation. This isn't much of a worry for Con Ed for a number of reasons. First, its core New York City market is comprised mostly of multifamily homes, a type of property that hasn't seen much adoption of renewable solutions like solar.  

That said, Con Ed is hedging for a much greener future. The company's stated goal is to generate 50% of New York's electricity with renewables (namely solar and wind energy) by 2030.

These days it owns a pair of wind farms in the Midwest, and earlier this year in combination with NRG Energy (NYSE: NRG), announced it would launch a mobile battery-storage unit to deploy in times of peak energy use this summer.

So that's Con Ed -- a rock-solid supplier that has a lock on one of the best markets in the country but regardless is taking steps to move into a renewable future.

A generous Dividend Aristocrat

As Con Ed's profits steadily increase, so do its dividends. In fact, the company has not only paid a distribution for many decades, it's managed to raise its payout at least once annually for 43 years, making it a dividend aristocrat (i.e., a stock that's done the yearly raise thing for at least a quarter of a century).

A constantly rising distribution, and a stock price that has generally risen over the course of many years, makes for an impressive total return (stock price appreciation plus dividend). On that basis, Con Ed has been stellar, outpacing the S&P 500's growth, not to mention the returns of numerous peers such as its partner NRG Energy and Southern Company.

ED Total Return Price data by YCharts

Better, Con Ed currently sports a dividend yield of 3.3%. Although that doesn't make it exceptional among utilities -- it well exceeds NRG Energy's 0.5% and NextEra's 2.7%, for example, but is below Southern's 4.8% -- it's comfortably above the 1.9% average of dividend-paying stocks on the S&P 500. 

That dividend is also comfortably within its financial means; the company's payout ratio for its most recently reported quarter is 54%.

Con Ed certainly has some challenges -- among them, a recent blackout that afflicted New York City's vital subway system, and that led New York Gov. Andrew Cuomo to demand an investigation. But the company's many positives far outweigh those negatives. It's dependably profitable, and an ultra-dependable dividend payer and raiser.

A dividend investor's dream, in other words.

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Eric Volkman has no position in any stocks mentioned. The Motley Fool owns shares of NRG Energy. The Motley Fool has a disclosure policy.