Edison International (EIX) has increased its quarterly dividend by 3.85%, bringing the annualized dividend to $1.35 per share from the previous payout of $1.30 per share.
The quarterly dividend, after the hike, will come to 33.75 cents per share, up from the prior payment of 32.50 cents per share. The first increased dividend will be paid on January 31, 2013 to shareholders of record on December 31, 2012.
This marks the ninth consecutive annual increase of Edison’s common stock dividend. Last year in December 2011, the company had increased the annual dividend by 1.56% to $1.30 from $1.28.
The company targets a dividend payout ratio of 45% to 55% of the earnings of Southern California Edison. This increase of 3.85% would prove to be the first step in achieving this target. Further, this target payout ratio can be achieved with the company’s attempts of moderating its capital expenditure levels at Southern California Edison.
The continuous increase in dividend reflects the company’s focus on balancing dividend growth and increase in shareholder’s value. Moreover, the company seems to be making the best use of its liquidity position with a cash balance of $1.08 billion.
In September this year, the company announced that as a part of Edison SmartConnect program, it plans to install smart electric meters in the San Joaquin Valley. Edison SmartConnect is a $1.6 billion program authorized by the California Public Utilities Commission. Edison SmartConnect meters are digital, safe and mutual communicating devices. The company will replace the traditional mechanical meters, which would result in the transition of electric system into a smart grid.
The company expects its sustained energy conservation to reduce greenhouse gas emissions and smog forming pollutants by an estimated 365,000 metric tons per year, which is equivalent of removing 79,000 cars from the road. These meters will allow the residential and small business customers to benefit from new energy and cost-saving programs and services in the near term.
With its strong portfolio of regulated utility assets and well-managed merchant energy operations, Edison International presents a lower risk profile compared to its utility-only peers. Going forward, key growth drivers for the company are consistent performance of its stable utility operations, California's supportive regulatory environment, steep growth in the rate base, incremental dividend, and ongoing alternative energy projects, which is in line with the renewable energy mandate.
However, we remain concerned due to the tepid economy, volatile gas prices and the pending regulatory approval for recovery of capital expansion costs. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.
Another power provider company Dominion Resources Inc. (D) also recently hiked its dividend rate to $2.25 per share for 2013, reflecting a 6.6% increase from $2.11 per share in 2012.
California-based Edison International is a utility holding company operating through its principal subsidiaries: Southern California Edison Company, Edison Mission Energy, and Edison Capital.
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