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This High-Yield Dividend Aristocrat Is Making a Surprising Move

Consolidated Edison (NYSE: ED) is an elite dividend stock. The utility has grown its dividend for 48 straight years, the best growth streak of any utility in the S&P 500. That has it well into Dividend Aristocrat territory and approaching an even more elite level of a Dividend King. Add in its nearly 3.5% dividend yield -- well above the S&P 500's 1.6% yield -- and Consolidated Edison is one of the more appealing dividend stocks in the energy sector.

One power source that has helped grow the company's dividend in recent years is its large-scale renewable energy portfolio. It's the second-largest solar energy producer in the country and a major wind energy producer. That's why it was surprising to see a report that the company hired an advisor to help sell its renewable energy portfolio. Here's why the company is seeking buyers for the units and what that might mean for its industry-leading dividend.

Looking to cash in on its renewable energy investment

Bloomberg recently reported that Consolidated Edison had hired Barclays to help the company find buyers for its renewable energy portfolio. The company's clean energy business operates three gigawatts (GW) of utility-scale wind and solar energy assets across 20 states. It is the second-largest owner-operator of solar production facilities in North America. The company also has a growing battery storage business and a 4 GW pipeline of wind, solar, and battery storage projects under development.

In February, Consolidated Edison said that it was considering alternatives for its clean energy businesses. It now seems set on trying to sell the unit, which, according to Bloomberg, could be worth as much as $4 billion. It said that the clean energy business could draw interest from private equity funds or strategic buyers looking to grow their clean energy portfolios.

Why is Consolidated Edison thinking of unloading its clean energy business?

Consolidated Edison has grown into more than an electric utility over the years. It currently operates three business segments:

  • Utilities: This segment holds its regulated utilities Consolidated Edison Company of New York and Orange and Rockland Utilities.
  • Clean energy: This segment owns, operates, and develops clean energy production facilities around the country and sells power to other utilities and end-users under long-term power purchase agreements.
  • Transmission: This segment operates natural gas transmission pipelines and electricity transmission lines.

The company has been expanding its clean energy and transmission businesses over the years to drive growth. In a sense, it has taken a page out of NextEra Energy's (NYSE: NEE) playbook by expanding into those non-utility segments. That strategy has helped NextEra generate industry-leading growth and shareholder returns over the last decade.

However, Consolidated Edison's strategy hasn't always paid dividends. For example, it owns a 10.6% stake in the Mountain Valley Pipeline, a controversial and long-delayed natural gas pipeline that counts NextEra as an investor. The cost has surged to $6.6 billion and won't enter service until next year at the earliest. That's up from a $4.6 billion price tag and late 2019 in-service date in 2018.

The company and its partner Crestwood Equity Partners also sold their Stagecoach Gas Services joint venture to Kinder Morgan for $1.225 billion last year. The companies initially formed that 50/50 joint venture in 2016 at an implied value of $2 billion. However, volatility in the oil and gas market and uncertainty over the future of fossil fuel infrastructure have weighed on pipeline assets in recent years.

While Consolidated Edison initially turned to clean energy and transmission to boost growth, it's now cashing in on some of those investments to fund opportunities across its core utility businesses. The company plans to invest $15.7 billion into capital projects across its operations in the 2022 to 2024 timeframe, with 70% of that capital going toward safety and reliability at its utilities and the other 30% toward green investments.

It sold Stagecoach to help fund some of these investments and is now looking into cashing in on its clean energy business to do the same. Those investments should help the company grow its adjusted earnings per share at a 5% to 7% annual rate over the next year. While the clean energy sale would act as a near-term growth headwind, it could help accelerate longer-term growth as the company reinvests that capital into its core business.

Switching power sources for the dividend

Consolidated Edison has been a fantastic dividend growth stock over the decades, largely because of the steady growth of its core utility businesses. While the company has tried to add new power sources in recent years, it has plenty of reinvestment opportunities in its core business to drive growth in the future. So, while its decision to cash in on its clean energy business might be surprising at first glance, that sale would give it the cash to reinvest in its core business to continue growing its dividend.

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Matthew DiLallo has positions in Crestwood Equity Partners LP, Kinder Morgan, and NextEra Energy. The Motley Fool has positions in and recommends Kinder Morgan and NextEra Energy. The Motley Fool has a disclosure policy.


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