New York isn’t just the most populous metropolitan area in the U.S.; it’s an iconic American city, with Broadway, the bright lights of Times Square, Wall Street, and much more.
Behind it all is Consolidated Edison (NYSE: ED), the sole provider of electric power across the five boroughs (and Westchester County and portions of New Jersey), but for some reason, this utility stock leads a quiet existence even though the company serves more than 10 million people.
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Perhaps some of ConEd stock’s overlooked status is attributable to a dividend yield of 2.9%. That’s only negligibly higher than the yield on the State Street Utilities Select Sector SPDR ETF, a bellwether utility exchange-traded fund (ETF). But even without a jaw-dropping yield, this stock deserves more attention.
Turn the lights on to ConEd stock
In terms of this utility stock’s dividend yield, it is nearly 200 basis points below where 10-year Treasury yields closed on Friday, Nov. 6. It’s possible, if not likely, that some income investors are avoiding the risks of stocks, even defensive utilities, to grab essentially risk-free income from U.S. government debt.
Interest rates are relevant in discussing utility stocks for another reason. The sector is seen as a bond proxy, highlighting its status as a defensive group. However, investors commit to a trade-off with utility stocks. Due to many utilities’ high debt loads, the stocks are notoriously sensitive to rising interest rates.
Given the bond-proxy label and a turbulent interest-rate environment, it’s understandable that ConEd stock isn’t top of mind for some investors. Still, they’re missing out because it’s displaying strength amid bond market commotion. It’s up 25.3% year to date and 13% over the three months ending Nov. 6 — a period including significant increases in Treasury yields.
Yes, financing costs weigh on earnings growth, but even with that, ConEd is expected to grow earnings at 6% annually over the next three years. That’s a pretty solid growth rate in a slow-growth sector. And speaking of growth, this utility serves it up on the payout front. ConEd is a Dividend King, meaning it’s one of the companies that have increased their annual dividends for at least 50 years. To be precise, ConEd’s streak of payout increases spans 53 years.
