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Edison International (EIX) Ups Quarterly Dividend by 4%

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Zacks Equity Research
·3 min read
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Edison International EIX) recently announced its intention to reward its shareholders with a 3.9% quarterly dividend hike. The revised dividend of 66.25 cents will be paid out on Jan 31, 2021 to its shareholders of record as of Dec 31, 2021.

The company’s current annual dividend yield is 4.21% compared with the industry’s 3.34% and the Zacks S&P 500 composite’s average yield of 1.49%.

The recent dividend hike marks the seventeenth consecutive year of dividend increase and takes the company’s annualized payout to $2.65 per share. The consistent hike in dividend reflects the company’s strong performance.

Solid Cash Flow Boosts Dividend Hike

Edison International's ability to pay out dividends on its common stock is primarily dependent on the earnings and cash flows coming from its primary subsidiary, Southern California Edison (SCE). During the third quarter of 2020, the California Public Utility Commission (CPUC) issued decisions in several of SCE's key filings. These include the 2020 Safety Certification, the Charge Ready 2 program, and the WEMA application, authorizing $505 million of wildfire insurance cost recovery and supporting continued treatment of insurance as a reasonable cost of service.   

Such favorable regulatory decisions are expected to have boosted the company’s balance sheet, which in turn must have encouraged management to declare the latest dividend hike. Notably, as of Sep 30, 2020, this Zacks Rank #3 (Hold) company had cash and cash equivalents of $92 million compared with $68 million at 2018 end. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Impressively, SCE currently intends to invest $19.4-$21.2 billion between 2020 and 2023 for grid modernization besides expansion of its distribution and transmission facilities. This will enable Edison International to offer electricity in a safe and reliable manner.

Positive return expected from such a solid investment plan must have encouraged Edison International’s management to increase its dividend above the industry average and toward its targeted payout ratio of 45-55% of SCE core earnings.  This initiative is expected to bolster dividend growth at a faster pace than SCE's earnings growth, apart from boosting investor interest in the stock.

Dividend Hikes in the Utilities Sector

The Utilities sector provides basic services like electric, water and gas. Consistent demand for these services has enabled companies to maintain steady earnings and cash flow. This helps the companies to reward shareholders with regular dividend payouts. Edison International is not the only company to reward its shareholders with dividend hikes this year. We have noticed that other players from the sector have increased the same to boost shareholders’ value.

Earlier this month, AES Corp. AES board of directors approved a 5% hike in first-quarter 2021 common stock quarterly dividend to 14.05 cents, thus taking the annualized payout to 60.20 cents per share. PNM Resources PNM raised its annual dividend by 8 cents per share, marking a 6.5% hike. In October, American Electric Power Company AEP had announced a hike of 4 cents per share or 5.7% in its quarterly cash dividend, bringing it to 74 cents.

Price Performance

In the past year, shares of the company have lost 12% compared with the industry's 6.9% decline.

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