In February 2000, Consolidated Edison (ED) traded at $26 per share. If I told you that per share revenues would only grow by 2.5% over the next fifteen years, and over 70 million new shares of stock would be created through executive options and additional stock issuances to avoid piling on more debt to the balance sheet, would you be interested in buying the stock? At the time, the stock was making $2.74 per share and trading at a valuation of 12x earnings.
I would guess that the stock price might expand its P/E ratio a bit, and the utility dividend would be nice, but I’d ultimately pass on the opportunity on the theory that 2.5% revenue growth over the long term just doesn’t seem like the path to building sizable wealth.
And yet, long-term ownership of the stock since February 2000 has produced returns of 10% to 12% annually … Read the rest of this article!