Consolidated Edison Stock Is Going Nowhere. Here's Why.

Before you go, we thought you'd like these...
Before you go close icon

Electric utilities have never been the most exciting opportunities in the stock market, but lately, one stock in the group has been underperforming the stock market as a whole, and performing particularly poorly relative to its peers to boot: Consolidated Edison . Why?

Three reasons.

Consolidated Edison is average -- at best
When you stack up Consolidated Edison stock up against two of its bigger rivals -- American Electric Power and Duke Energy -- at first glance, ConEd doesn't look all that bad. Its dividend yield, 4%, is smack-dab in the middle between AEP's 3.8% yield and Duke's 4.2%. Similarly, ConEd's free cash flow yield, sandwiched between those of AEP and of Duke, looks pretty average.


ED Free Cash Flow Yield Chart

ED Free Cash Flow Yield data by YCharts.

Given this, and with ConEd selling for only a 16 P/E, versus higher price-to-earnings ratios at both of its peers, you might start thinking that paying a little less for Consolidated Edison stock's middle-of-the-road dividend is a pretty bright idea.

But that would be a mistake.

Consolidated Average is losing its way
Take a closer look at that chart, and you may notice that while Consolidated Edison stock does generate decent cash relative to its peers, the rate of that cash production -- a mere 2% -- isn't all that great, objectively speaking. That small trickle of cash doesn't give ConEd a lot to work with as far as stock buybacks and dividend increases go. You may also notice that ConEd's free cash flow yield is starting to trend downward.

Of course, that's only to be expected, given how ConEd's sales have been shrinking lately.

Consolidated Edison is going nowhere
The future doesn't look particularly bright for Consolidated Edison stock, either. Over the next five years, most analysts who follow this industry expect to see ConEd grow its profits at barely half the rate of its peers -- again, limiting the potential for dividend increases, share buybacks, or profits for its shareholders.

Given all this, it's no great surprise that Consolidated Edison stock is up a mere 7% over the past year -- less than half the average gain on the S&P 500. There's little reason to hope that Consolidated Edison stock will do better in the future.

If you're on the lookout for high-yielding stocks with better prospects than ConEd offers, The Motley Fool has compiled a special free report outlining our nine top dependable dividend-paying stocks. It's called "Secure Your Future With 9 Rock-Solid Dividend Stocks." You can access your copy today at no cost! Just click here.

The article Consolidated Edison Stock Is Going Nowhere. Here's Why. originally appeared on Fool.com.

Fool contributor Rich Smith and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners