Consolidated Edison is a utilities/energy company. Its ticker symbol is ED. It fits our assumptions for the application of the Gordon Growth Model.
It is in a stable business. On their website, they write as a description of the corporate strategy:
“ The guiding principle of Con Edison's corporate strategy has been, and continues to be, to deliver shareholder value by focusing on what we do best - providing safe, reliable energy to our millions of customers in the Northeast. At Con Edison, we don't have to go back to basics - we never left the basics.”
Its growth in dividends is stable at about 0.9% per year.
Growth rate: Can the firm sustain the historical growth rate in earnings? Earnings have been declining…the 2004 earnings per share were $2.28, compared with 2003, 2002 and 2001 of 2.37, 3.14 and 3.22, respectively. However, in 2005 and 2006 they increased to $2.89 and $2.94 respectively.
The dividend payout ratio (DPS/EPS) has increased over this period from 0.68 (in 2001) to 0.94 in 2004, but then declined to 78% in 2006.
Was all of the dividend paid in 2006 really “free cash flow”? Or is the true free cash flow to equity lower? [Check the cash flow statement of 2006]