Portfolio Manager Alex Ruehle of Denver Investments says Edison International (NYSE:EIX), a California-based public utility, will benefit from the state’s favorable regulatory environment. He also says the company’s strong fundamentals should drive 6% dividend growth.
Most utilities are struggling against the backdrop of efficiency improvements, environmental upgrade requirements and demand declines. However, a favorable regulatory environment in California aligns investors in Edison International with the state’s ambitious goals to modernize the electric distribution grid, integrate rooftop and utility-scale renewable generation, develop battery storage solutions, apply energy efficiency technologies and incorporate electric vehicles. California awards its utilities some of the best allowed returns on equity of any state in the nation and has created mechanisms to ensure timely payback of capital expenditures.
Edison International’s clean balance sheet, low payout, and strong and stable cash generation, which derived primarily through transmission assets and less predominantly from riskier generation sources, confer the flexibility to fund its capital program without diluting shareholders through share issuance. The company maintains a below industry-average payout ratio and will support dividend growth through investment in its productive asset base. Currently, Edison International has a 2.7% dividend yield. We believe that its attractive fundamentals will drive 6% dividend growth over the next five years.
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