The EU is facing a severe recession. Greece is facing a depression. It is possible other countries could follow. The BRIC countries are all slowing rapidly as are other emerging market countries. The US is slowing too with a weak Non-Farm Payrolls data gain for May of only 69,000 jobs, when an over 150,000+ jobs gain was expected. When as an investor you are facing all of this, it is nice to think you can buy a good dividend stock that steadily climbs higher over time.
Southern Company (SO), a major US electric utility company, is just such a stock. It pays a 4.25% dividend. It has outperformed the SPDR S&P500, the SPY, by approximately 40% over the last five years, which included a US recession. If you add its greater dividend (than the SPY) into the mix, SO has beaten the SPY by roughly 55% over that time. Given that the SPY is a typical benchmark of strength, this is exceptional performance with little risk. The Beta for SO is only 0.11. This means it is much more stable than the SPY. Isn't this what you want when you are facing a highly uncertain world economic picture?
Other fiscal fundamentals tell a like picture. SO trades at a P/E of 18.63 and an FPE of 16.41. SO historically (over the last five years) trades at a P/E between 12 and 19. This means it is at the high end of its historical range, but it is still not overpriced. It has shown steady GAAP income growth over the last three years from $1.708 billion in 2009 to $2.040 billion in 2010 to $2.268 billion in 2011. This is what you like to see in a utility. Looking forward, SO has a next 5 years per annum EPS growth rate of 5.58%. This is modest, but it is good steady growth for a good dividend paying utility. SO also has had steady analysts' EPS estimates for FY2012 and FY2013 over the last three months. Given the negative trend of many stocks' EPS estimates recently, this is impressive and encouraging to an investor.
SO is leader in environmental cleanliness. In 2007 SO generated 70% of its power from coal and 16% from natural gas. As natural gas prices have fallen, SO has moved to using a higher percentage of "greener" natural gas. It generated 40% of its electrical energy from natural gas and 40% from coal in 2011; and it intends to generate 47% from natural gas and 35% from coal in 2012. SO was awarded the 85th annual EEI Edison Award for the Plant Vogtle nuclear expansion (low greenhouse gases). It is a leader in carbon capture (carbon dioxide capture) with its project at Plant Barry in South Alabama. It is also building the TRIG plant with carbon capture technology in Mississippi.
SO is adopting renewable energy technologies. SO is building one of the nation's largest wood biomass plants in Texas. It is operating a 30 megawatt solar plant in New Mexico. It is gathering data on wind power generation in Alabama, Florida, and Georgia. It is offering green energy options to customers. It has 34 hydro facilities in Alabama and Georgia. It has nuclear startups planned for 2016 and 2017. It is also spending heavily on Smart Grid technologies. This is not a company that is going to fall behind environmentally or technically. This makes it just that much safer a place to put your money.
The five year chart of SO gives some technical direction to this trade.
The slow stochastic sub chart shows that SO is approaching overbought levels. This is incredibly impressive given the recent down trend the US markets have experienced. The main chart shows that SO has been in a strong uptrend since Mar. 9, 2009 (the bottom of the market in the recession). SO has shown little weakness since, even in the market down moves since March 2009. It may be near the top of its historical PE range.
However, with no sign of weakness in 2+ years, it is still a buy for an investor with a long term horizon. Averaging in is probably the best strategy. We could still see a big down leg due to events in Europe and elsewhere. This could take SO down a bit. An eventual US recession might lead to a fall in SO; but as the chart above shows, SO should recover quickly. You just have to keep collecting your dividend. That's a reassuring thought.
Good Luck Trading.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SO over the next 72 hours.