Southern Company: Playing Defense To Win The Dividend Income Battle

| About: Southern Company (SO)

Southern Company (NYSE:SO) is a major electric utility company. The company provides generation, transmission, and sales of electricity. Electricity creation is offered via coal, nuclear, petro carbons, and hydro resources. Utility services are required year round in the U.S.. The sector is recession proof because consumers require power and energy to heat and cool their houses. The stock yields 4.2%. In this article I will highlight a few other recession proof ideas for your dividend income consideration.

2011 Earnings Per Share and Guidance

Southern Company earned fourth quarter 2011 earnings of $261 million, or 30 cents a share. The company announced 2011's earnings per share of $2.57.

Reputable and Trustworthy Management

Southern Company is in the energy sector. It is affiliated with several other companies, namely Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company and Southern Power Company. Its leadership and governance is filled with the old tirades of honesty, trust, performance, commitment and ethics, but it appears that the Southern Company really lives up to those standards. A look at Southern Company's programs shows its support for alternative sources of energy such as solar power, a concern for the environment with its Carbon Disclosure Project, Water Management Projects, investments in emission reduction of greenhouse gases and other laudable projects that no ordinary power company would touch with a ten foot pole.

A thinly traded stock or a thin market occurs when there are few buyers or sellers in the market. This is by no means a measure of a company's profitability. Nor does the situation imply a loss of investor's confidence in the stock. It could just as well mean that enough investors have placed their confidence in the company, and are neither buying more nor selling anymore. The result is a stock price that varies little over the course of time. And this is what is supposed to be happening with Southern Company.

Risk, Profit and Vision

Risk and the profit - that is what the market wants and, apparently, Southern Company can only offer one of the two. And this is quite fortunate too - risk is not something one would wish to associate with a power company, especially one that has nuclear reactors in its operations. Stability with a power company is definitely more desirable, and the only drawback to this condition is that it is not what the market wants.

But then, the market is not always right. By maintaining its vision, Southern Company has stamped its class, refusing to take riskier paths for profit and instead sticking to its own vision of the future, where everything is according to plan.


This is not to say that Southern Company is in any way lacking in innovation. Southern Company has employed initiatives in carbon capture, as a way of lessening its carbon footprint. It has two nuclear plants waiting for approval, to increase its power generating capacity without undue burden to the environment. Southern Company has also heavily invested in renewable energy, with a biomass unit capable of generating 100MW in Georgia, 34 hydroelectric plants with 2,730 MW capacity, an experimental 30MW solar plant in New Mexico, and a 30MW plant in Hawaii. It will be installing more than 4 million smart meters by this year that will help save money on the consumer side of power consumption. It has plans for more energy efficiency up to the year 2012, which definitely says a lot about Southern Company's vision.

And this thin market keeps biting back. Comparing Southern Company's stock prices a couple of years back, the trend is definitely on the upward movement - from a low of $28.82 in 2008 to March 9th's price of $45.11. Southern Company is definitely on track with regards to progress - the steady climb is enough proof.

Southern Company Growth Initiative

It is good that the recent news from the Nuclear Regulatory Commission (NYSE:NRC). The approval has been granted for the Alvin W. Vogile nuclear plant in Georgia by the Nuclear Regulatory Commission. This is not only a great addition to the capacity of Southern Company to generate power, nor is it just another innovation for the company, but it will be the first nuclear reactor to be approved since the Three Mile Island incident in 1979, and the honors go to Southern Company.

Perhaps when Vogile 3 and Vogile 4 are fully appreciated in the market space, the market will pick up interest, but then, this is all according to the plans of Southern Company again. Unit 3 is expected to begin operating in 2016 and Unit 4 in 2017.

Branching Out

It could be time for Southern Company to branch out into other sectors. This way, the stability of Southern Company in the energy sector is not at risk, but its new acquisitions will carry the risk for Southern Company. The future of the company is set in stone until as far off as 2012, and if that is the case, little interest will be generated for the market. And that will be unfortunate, since Southern Company has both the strength and integrity to carry out its vision.

But with new investments in new sectors, interest could be generated, albeit artificially. This is the danger of stability, the reluctance to branch out to newer fields. Innovation by Southern Company has been kept within what the company is most familiar with, which is the energy sector. But a newline of business could turn things around for Southern Company - it could mean more headaches, a NW vision and all sorts of problems the company might not be used to, but at least there is room for growth. And along with the growth, the risk and profit, just to keep the market interest on a great business like Southern Company.

Defensive Names

I will discuss a few recession proof ideas for your income portfolio. Investors can view the various income returns per each idea.

Altria Group, Inc. (NYSE:MO)

Altria Group manufactures and sells tobacco products in the U.S.. These include cigarettes, and smokeless products. The company also sells wine in the U.S. and globally. Core tobacco brands include Marlboro, Virginia Slims, Parliament, Benson & Hedges, Skoal, Copenhagen, and Basic.

Altria offers a 5.4% annual dividend yield. The company has a .39 beta implying that Altria common moves approximately 39% of the overall market's volatility.

American Capital Agency Corp. (NASDAQ:AGNC)

American Capital Agency is a mortgage REIT that invests in agency securities for which the principal and interest payments are guaranteed by a U.S. Federal Government agency (e.g., GNMA). The company borrows at short term rates, referred to as repurchase agreements. The company then buys longer duration agency mortgage backed securities. The net yield spread is then paid out in the form of dividends to shareholders. The current yield is 16.9% per year.

American Capital Agency has an 34% correlation to the overall market. The beta, therefore, is .34. This provides less stress during turbulent market conditions.

Duke Energy Corporation (NYSE:DUK)

Duke Energy is an energy company in the U.S. and Latin America. The 3 core segments are: U.S. Franchised Electric and Gas, Commercial Power, and International Energy. The company creates and sells electricity in core central areas of the U.S. The current dividend yield is 4.7%. Duke has an 18% correlation to the overall market. The beta, therefore, is .18. This provides less stress during turbulent market conditions.

AT&T Inc. (NYSE:T)

AT&T offers telecom services on a global basis. The end consumer are retail consumers, and businesses of all sizes. AT&T offers wireless voice and data services to the same end markets. The stock offers a 5.6% annual dividend. AT&T has a .48 beta meaning that the stock moves approximately 48% of the overall market's volatility.


I recommend investors be defensive minded and buy low beta, high yielding dividend stocks. This will provide current income to support investors' life style. In addition this will support the risk of capital losses in a stagnant economy.

Disclosure: I am long AGNC, MO.

About this article:

Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500. Become a contributor »
Tagged: , , , Electric Utilities
Problem with this article? Please tell us. Disagree with this article? .