Warning: This article may bore you…
No, no, no - don't click away! Read on!!!
Dividend investing can be at its best when it's boring. Who wants drama and suspense when what we're really looking for is cash flow?
Imagine: dollars popping into your brokerage account like clockwork, more and more every year…
If I want excitement, I'll go to the amusement park. Show me the money, instead!
The good news is that boring, reliable and predictable companies still exist. And one such company should be part of everybody's legal money-printing operation.
Let's head south and visit Southern Company (SO).
Time Flies When You're Making Money
What were you doing 31 years ago?
I was in high school. I hadn't bought a single share of stock yet. But I was interested and taking classes that were a prelude to a collegiate and professional career in investing.
All throughout, shareholders of Southern Company have enjoyed 31 years of dividend payments. Just as impressively, Southern Company has increased its dividend every year since 2003, right through the financial crisis.
And that dividend has a current yield of 4.32%…
The stock took a beating beginning in early 2008 through March of 2009 (like most stocks did), but the cash flow didn't stop. And that's what you want during hard times - reliable income.
You see, Southern Company is a stellar example of what a regulated utility is supposed to look like. The key to playing the game it plays is a good relationship with the regulators.
The regulators, you know, can be the bad guys. So utilities like Southern Company need to get along with them. The regulators decide all the financial terms that affect how much a company can charge, how much it earns and what it can afford to pay you, the shareholder.
And SO has kept it on the up and up with its regulators. Even so, some analysts think that trouble is brewing for SO.
You see, in spite of the great relationship it has with regulators, Southern Company's reliance on burning coal for energy could expose it to stricter environmental regulations, driving the rates it charges higher, hurting its relationship with customers and slowing or shrinking revenue.
It's a good reason not to expect the stock to appreciate much from where it is today. But for income purposes, that hardly matters. With Southern Company we're talking about cash flow, not trading profits.
As a matter of fact, I think Southern Company is trading in a channel between $42.00 and $47.00 per share, so if you're comfortable selling covered call options for additional income, it's a prime candidate for that strategy.
Growth Should Continue
Southern Company is expected to grow, but slowly.
You see, one vital metric for utilities is population growth. And population growth has continued in Southern Company's region from the financial crisis through today.
If population growth was slowing, or worse, shrinking, then Southern Company would be losing customers and revenue as people move out of SO's service region. But that hasn't happened thanks in part to a healthier local economy.
The company should continue to benefit from this positive environment. It's not expected to grow very quickly - around 4% is the consensus. But it should manage to grow enough to keep shareholders happy and maintain its successful dividend program.
Bottom line: Southern Company is a reasonably safe stock to buy and hold for the dividend payments. It could go higher, or lower, but there shouldn't be a big move in either direction.