Forget Southern Company, Here's A Utility With Double The Total Return Potential That's Also 28% Undervalued

Summary

• Regulated utilities have long been a staple of high income portfolios.
• Southern Company is one of the largest and most popular high-yield utilities, thanks to its safe business model and slow but steady dividend growth.
• However, there are plenty of other great utilities, including NextEra Energy Partners.
• Learn why this best in breed renewable energy utility is set up to crush not just most other utilities but the market as well in the coming years and decades.
• But also what risks investors need to keep an eye on.

I'm a huge fan of utilities (3rd largest sector in my portfolio), thanks to their secure and steadily growing dividends.

That being said, the downside to this industry is that the biggest and most popular names, such as Southern Company (NYSE:SO), have relatively slow growth prospects.

Combined with declining yields in the past few years, courtesy of record low interest rates, this means that future total return potential from this industry is generally sub par.

Of course, that doesn't mean there aren't some much faster growing, exceptional high-yield, dividend growth opportunities.

Let's take a look at why income investors considering Southern Company might want to consider NextEra Energy Partners (NYSE:NEP), the gold standard of renewable energy yieldcos instead.

Southern Company: Solid Investment But...

Source: Simply Safe Dividends

Southern Company has become known for its slow but steady dividend growth, which has helped it to generate strong, peer and market-beating total returns over the long term.

Source: Southern Company

Of course, in the last few years, shares have lagged both its utility peers and the S&P 500. However, management has a plan for turning things around.

Source: Southern Company Investor Presentation

The key to Southern's long-term strategy is to diversify into faster growing businesses but only those backed by long-term, fixed contracts.

Midstream Base Rate Growth

For example, as you can see, Southern Company expects to receive regulatory approval for 2.6% annual growth in its electric base rate.

However, thanks to the company's aggressive push into the midstream gas segment (pipelines), it can tap into a much faster growing market, one powered by America's fracking revolution and the continuing boom in natural gas production.

Source: Enterprise Products Partners

Combined with the company's planned $22 billion in growth investment through 2021, Southern Company believes it can achieve much stronger than average EPS growth, which bodes well for its dividend growth prospects.

...NextEra Energy Partners Owns The Future

While Southern Company's long-term prospects make it a safe long-term income growth investment, the fact remains that NextEra Energy Partners potentially offers high-yield investors an even better utility option.

Source: NextEra Energy Partners Investor Presentation

That's because NextEra Energy Partners is the gold standard of yieldcos, which are essentially renewable energy utilities.

The way it works is that a yieldcos sponsor, general partner, and manager, in this case, NextEra Energy Inc. (NEE), America's largest clean energy provider, builds solar and wind projects, which it then contracts under very long (20-25 year) power purchase agreements or PPAs with other major utilities.

These long-term PPAs ensure a steady and long-term stream of cash flow from which NEP pays a generous and fast-growing distribution.

That in turn attracts income investors, who help the yieldco raise external debt and equity capital to keep buying NextEra Inc.'s portfolio of contracted solar and wind projects.

Meanwhile, thanks to NextEra Energy Inc. owning the 65% of NEP's units and 100% of its incentive distribution rights, NEE is able to recoup the cost of constructing its renewable energy projects while still benefiting from an exponentially growing stream of cash flow.

In other words, NEP and NEE have a symbiotic relationship that helps them both achieve industry leading growth, which results in excellent market beating total returns.

Better yet? Because NextEra Energy is the single largest renewable energy provider in the world, it has an enormous asset base which it can drop down to grow NEP's cash flow and payout.

And, thanks to NEE's agreement to lower its top IDR level to 25% from 50%, a move that will result in much higher profitability and faster growth for the yieldco in the future, NextEra Energy Partners now expects to grow its distribution by 12% to 15% for at least the next five years.

Strong Balance Sheet Helps Secure The Payout

Utility	Debt/EBITDA	EBITDA/Interest	Debt/Capital	Current Ratio	S&P Credit Rating
Southern Company	5.52	5.61	56%	0.69	A-
NextEra Energy Partners	4.07	7.40	62%	1.83	BB
Industry Average	3.35	NA	48%	0.82	NA

Click to enlarge

Sources: Morningstar, GuruFocus, Simply Safe Dividends

Strong long-term growth potential is meaningless if a company has an overleveraged balance sheet that can result in a dangerous dividend or lack of liquidity.

Fortunately, while both Southern Company and NextEra Energy Partners have high debt loads, their strong recurring cash flow are more than enough to service their debts and short-term obligations.

That's why despite above industry average levels of debt, Southern Company continues to enjoy a strong investment grade credit rating and nearly $5 billion in current liquidity with which to invest in its ambitious growth efforts.

Meanwhile, while true that NextEra Energy Partners doesn't have an investment grade credit rating, it does boast the strongest balance sheet of any yieldco, including the lowest leverage ratio, strongest current ratio, and a very strong interest coverage ratio.

In addition, NEP has $445 million in current liquidity, meaning unrestricted cash and remaining borrowing capacity under its revolving credit facilities.

However, it's important to note that because of the yieldco business model, which is similar to MLPs in that most growth capex is funded with external capital, NextEra Energy Partners, also enjoys exceptionally strong access to cheap equity capital.

NEP data by YCharts

That's thanks to both its strong balance sheet, a general partner with the largest available credit facilities of any utility and its premium unit price; which has soared since the IDR was lowered to 25%.

This means that NEP now enjoys by far the lowest cost of capital of any yieldco, allowing for highly profitable accretive investments.

Source Of Capital	2017 Capital Weighting	Cost Of Capital
Retained Cash Flow	23.0%	0%
Debt	47.7%	2.76%
Equity	29.3%	7.58%
Weighted Average Cost Of Capital	100%	3.54%
TTM ROIC	NA	5.21%

Click to enlarge

Specifically, that means that NEP's weighted average cost of capital or WACC is much lower than its return on invested capital or ROIC.

And, given the recent IDR decrease, NextEra Energy Partners' future ROIC is likely to rise to the 6% to 7% range, meaning that even though the unit count will rise over time, its cash available for distribution or CAFD (yieldco equivalent to free cash flow and what funds the payout) per unit should continue growing strongly.

That not only means a highly secure payout but also excellent long-term total return potential.

Payout Profile Reveals NextEra's Superior Total Return Potential

Utility	Yield	Payout Ratio	10 Year Projected Payout Growth	10 Year Potential Annual Total Return
Southern Company	4.9%	84%	4% to 5%	8.9% to 9.9%
NextEra Energy Partners	4.0%	77%	12% to 15%	16% to 19%
S&P 500	1.9%	39.5%	5.7%	9.1%

Click to enlarge

Both NEP and Southern Company offer very nice yields, compared to the broader market.

Of course, the long-term total returns aren't just based on current yield, but yield + dividend growth. That's why I'm so bullish on NEP, because while Southern offers a safe and steadily growing yield, NextEra Energy's overall payout profile is far superior.

Now, I realize that some readers will question my projection for Southern's dividend growth. After all, with management guiding for 8% to 10% annual net income growth over the next few years, shouldn't investors expect similar payout hikes?

Source: Simply Safe Dividends

Not necessarily. That's because in recent years, Southern's increased capex spending resulted in its payout ratio climbing substantially higher than the historic 70% to 80% range.

That means that even if EPS ends up rising very quickly over the next five years, management is likely to grow the dividend slower to allow the payout ratio to come down to safer levels.

Meanwhile, NEP, because of its payout ratio being lower and thanks to its 4 GW of dropdown candidates from NEE (which would grow its overall cash flow by 133%), offers some of best payout growth (and total return) potential of any utility you can find today.

Of course, in a rising rate environment, many utility investors are worried about valuation compression and what it could mean for short to medium-term share prices.

However, the good news is that when we look at the current valuation of NEP, despite the strong recent rally, units continue to look undervalued.

Valuation Remains Attractive

SO Total Return Price data by YCharts

While Southern Company has underperformed most other utilities thus far in 2017, as well as the S&P 500, NextEra Energy Partners has been on fire.

That's due mostly to the IDR reduction and management's extending of its 12% to 15% distribution growth target to at least five years.

However, while many might consider such a strong rally a sign that NEP is overvalued, that isn't necessarily true.

Utility	Yield	Historical Yield
Southern Company	4.9%	4.6%
NextEra Energy Partners	4.0%	3.6%
Industry Median	3.5%	NA

Click to enlarge

Source: GuruFocus

That's because, when we compare both Southern Company's and NEP's current yield to their historical norms, (as well as their industry peers) we can see that both appear to be trading at small but significant discounts.

Utility	Forward Payout	Projected 10 Year Payout Growth	Fair Value Estimate	Growth Baked Into Current Price	Margin Of Safety
Southern Company	$2.32	4.5%	$48.14	4.2%	1%
NextEra Energy Partners	$1.46	15%	$51.14	9.4%	28%

Click to enlarge

Sources: GuruFocus, Management Guidance

And, when we take a longer, 20-year view, using a discounted dividend model, we can see that Southern Company is actually fairly valued, while NextEra Energy Partners is trading at a very large margin of safety.

That's because the current share price of Southern accurately prices in its likely future dividend growth. However, NEP's unit price is likely underestimating what the yieldco's enormous growth potential is capable of.

That means that Southern has essentially no margin of safety, making it only appropriate for those looking to open an initial position and then buy on dips.

On the other hand, despite a nearly 50% rally this year, NEP units remain attractive for both new and existing investors, though, obviously, adding on dips is a great idea as well.

Risks To Keep In Mind

While both Southern Company and NextEra Energy Partners will likely make excellent long-term income investments, there are several risks to keep in mind for both.

First and foremost with Southern Company is that management's capital allocation skills haven't always been the greatest.

One needs to only look at the Kemper fiasco or the $1.3 billion in cost overruns for its Vogtle 3 and 4 nuclear reactors to see that management's guidance isn't always that trustworthy.

As for the elephant in the room, rising interest rates, there's good and bad news on that front.

The good news is that, despite conventional wisdom, higher interest rates don't necessarily result in poor utility performance.

In fact, despite interest rates falling to their lowest levels in history, utilities have actually underperformed the S&P 500 quite badly in recent years.

Of course, correlation isn't necessarily causation, and so just because utilities as a sector last beat the market when rates were rising steadily doesn't necessarily mean that the same will happen this time, or for Southern Company in particular.
Source: Southern Company Investor Presentation

After all, Southern's above average debt load means that it will have to refinance $13.8 billion in debt in the coming five years which could result in substantially higher interest costs.

And, speaking of interest costs, we can't forget that there is the risk that the tax reform the White House is pushing could result in substantial harm to the regulated utility industry.

That would be the potential elimination of interest deduction, which regulated utilities count on to lower their taxable earnings.

As you can see, an elimination of this deduction would result in a 6% reduction in Southern's EPS, representing about one year's worth of growth.

What about NEP? What risks should investors look out for there?

Well, there are three main ones to keep in mind.

First, be aware that as a yieldco, NEP's volatility is much higher than most regulated utilities, with a beta of 1.23 compared to Southern's 0.12.

That means that investors who can't hold through periodic strong downturns, such as retirees living off the 4% rule, might want to avoid the stock, lest you be forced to sell units at a much lower price to fund living expenses.

Next is the fact that, because yieldcos are passthrough entities, which like MLPs are forced to raise external capital to grow, there is a risk that NEP's future growth potential could become limited if its yield falls outside its "sweet spot" of 4% to 7%.

That is the range at which the current payout is generous enough to meet immediate income needs but still low enough that NEP's cost of equity is low enough to allow for accretive growth.

Source Of Capital	2017 Capital Weighting	Current Cost Of Capital	Cost Of Capital With Interest Rates +2% and Yield 8%
Retained Cash Flow	23.0%	0%	0%
Debt	47.7%	2.76%	4.76%
Equity	29.3%	7.58%	10.0%
WACC	100%	3.54%	5.20%
TTM ROIC	NA	5.21%	5.21%

Click to enlarge

Sources: GuruFocus, Management Guidance

For example, if the Federal Reserve is correct that interest rates will rise by 2% by the end of 2019, and NEP's yield were to decline to 8%, then its cost of capital would rise by 47%, potentially limiting its ability to grow fast enough to maintain its targeted payout growth.

That's not to say that this will necessarily happen. After all, with the IDR fee reduction, NEP's ROIC is likely to rise to 6% to 7% meaning that even in a rising rate environment, the yieldco could still grow.

However, the point is that a yieldco's ultimate growth rate, like MLPs and REITs, is dependent on volatile investor sentiment.

Finally, we can't forget that, while its PPAs are very long-term (average remaining length of 18 years), decades from now NEP will have to renegotiate its PPAs with third party utilities.

Source: Lazard

Given the rate at which solar and wind power prices have been falling in recent years (and are projected to keep declining), it's likely that future PPA prices will be much lower. That means that NEP will have to continue growing quickly in order to offset its future PPA resets.

Bottom Line: NextEra Energy Is The Best Way To Profit From The Green Energy Gold Rush And An Excellent Alternative To Traditional Utilities

Don't get me wrong, I'm not saying that Southern Company is a bad investment, or that if you own it, you need to run out and sell it all.

Rather my goal is to point out a high-quality alternative with a generous, secure, and fast growing payout, one that's likely to grow for many years or decades to come.

And, while NEP isn't necessarily suited for everyone, if you have a long-term investment horizon, or plan to live purely off dividends in retirement, then it likely represents one of the best high-yield utilities you can own.

Analyst’s Disclosure: I am/we are long NEP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[mjtroll1]

I was stopped out of SO with close below 45.81 ...the SO/SPY pair has "rolled over" and I would now expect SO underperformance

[mjtroll1]

regarding SO

The SO/SPY pair has broken below its recent trading range.. the pair seemed IMHO to have bottomed and actually looked like it broke out in april .. am long with stop close below 46.4

[kalu0003]

Dividend Sensei,

Just curious! why are these 3 Californian utilities not commonly discussed: SRE PCG and EIX? Are these bad long term investments relative to NEE/D/SO/DUK? Where do you see greatest opportunity among these three - SRE PCG and EIX? Thanks

[aretailguy]

IMHO SRE is the only one worth owning. I own a small amount. All three have low growth rates as well as low dividends. Not a good combination. I strongly prefer NEE, D, SO, SEP, WEC and especially NEP. The California PUC is not generous with rate increases so California utilities will always have poor overall results.

[Dividend Sensei]

I'd say that yes, realtive to NEE, D, and SO, those California utilities offer weaker total return potentials.

That being said, SRE is by far the best of the bunch, especially after just snatching up Oncor from the jaws of Berkshire.

[Dividend Sensei]

Exactly right.

Don't feel the need to diversify into every region of the country.

California has a lot of issues that will make it challenging for investors to earn decent returns from CA utilities.

The same is true for ED in NYC.

You won't lose your shirt, but you'll leave a lot of money on the table compared to those who buy NEE, WEC, D, SO, not to mention the LP utilities such as BIP, BEP, NEP, and PEGI.

[kalu0003]

Dividend Sensei,

what are your views regarding NEP vs PEGI? Where do you see better long term investment prospects? Thanks

[Dividend Sensei]

So with the latest shake out in the industry, specifically FSLR, SPWR and NRG selling off their yieldCos, I view the yieldCo industry as a 3 stock industry.

NEP is the gold standard, thanks to NEE going even more all into renewable.

BEP is 2nd favorite thanks to BAM's management, and its legendary access to practically unlimited capital.

PEGI is the third, with management rededicating itself and the greater investments from Canadian Pensions.

I own all three and don't see that changing anytime soon.

[mjtroll1]

regarding NEE

The NEE/XLU pair indicates that NEE has been multiyear outperformer.. it however is currently trading 2 sigma rich ...would not be a buyer

[Dividend Sensei]

An interesting approach to technical analysis.

Of course as a long-term investor I would still be willing to own NEE because it's just that good.

[mjtroll1]

regarding this statement

I myself plan to move to Florida, when my income is so high that my income tax burden in Minnesota becomes greater than $2000 a month.

I live in Illinois which I thought had a monopoly on worse tax state in nation but I see our state income tax of just under 5% is a steal relative to Minnesota's 7+

[Dividend Sensei]

True.

While Minnesota is a beautiful state, with a great standard of living, it's income taxes are some of the highest in the country.

$0 to $25,179: 5.35%
$25,180-$82,739: 7.05%
$82,740-$155,649: 7.85%
$155,650+: 9.85%

Luckily much of my income is not taxable, (VA pension) but if my taxable income ever reaches $300,000, including REIT dividends (which are unqualified) then my state tax bill will hit my $2,000 monthly cap (my family is here so I'm willing to pay this much to live near them).

That would represent an effective tax rate of 8.08%.

From I estimate that, each $1 in taxes, accounting for lost discounted investing potential, is worth about $20.

Thus $24,000 a year in state taxes is really costing about $480,000 a year in lost future wealth (in today's dollars) or $4.8 million over a decade.

Can you put a price on family? Sure, and that's about mine. If I hit that level I'll simply move my family to a Florida, preferably to a sky scraper penthouse in Miami Beach;)

[jwadtw]

One aspect not often addressed is that an investment in SO is an investment in the Southeast US economy. All things considered, I think that's a fairly good bet, and the dividends keep on coming.

[Dividend Sensei]

Sure. I'm not all that thrilled about Alabama, Mississippi, and Georgia, but they should still grow somewhat.

[jwadtw]

Seems to me AL, MS, GA (and SC) are where most new factories are being built. Low cost of living, right to work, sunbelt, etc. I see a much stronger future there than CT, IL, CA, NJ, and other insolvent states.

[Dividend Sensei]

Sure, the big blue states are doomed. I'm saying that Texas and Florida are where the big growth is coming.

Which is why NEE has such a bright future, though it's a shame that Oncor acquisition fell through.

I myself plan to move to Florida, when my income is so high that my income tax burden in Minnesota becomes greater than $2000 a month.

[mjtroll1]

ds..tks for comment.. having said that comparing SO to T is akin to picking between the lesser of two evils as both are multiyear underperformers vs their respective indices and to the broader market..

[rnsmth]

I am happy to have both T and SO as positions in my portfolio, along with all my other companies that can be seen in my profile.

[mjtroll1]

regarding this statement

I am happy to have both T and SO as positions in my portfolio, along with all my other companies that can be seen in my profile.

I am happy you have them to (and not me)

[mjtroll1]

regarding this statement

That's to be expected. Nothing ever outperforms all the time.
Regression to the mean is natural and a good buying opportunity

nothing every outperforms all time time is hardly the case regarding SO ..we are approaching decade lows indicating multiyear underperformance
regression to the mean is also a mischarterization as current level on the the pair is well below mean and in fact approaching 2 sigma cheap

but nice try in an area in which is clearly not your long suit

[Dividend Sensei]

I see your point.

Stocks won't necessarily regress to the mean unless there is a business catalyst.

BUT SO does have solid potential with its long-term growth plan.

In the meantime you get paid 5% to wait.

Not saying that SO is the best utility far from it, BUT it's certainly better than AT&T which is paying the same but with only 2% dividend growth.

[mjtroll1]

regarding SO

the SO/XLU pair has seen SO dramatically underperform since june 2012.. its approaching its all time low in 2006/2007 which I am expecting it to test..

[Dividend Sensei]

That's to be expected. Nothing ever outperforms all the time.

Regression to the mean is natural and a good buying opportunity.

Especially if SO hits a yield of 5%, then it's time to back up the truck.

[rnsmth]

<>

Well, I bought it in December 213 for forty bucks and change. Those shares are up 16%. I do not call that approaching its all time low in 2006-07. It may be, but I do not call it that.

[mjtroll1]

regarding this statement

Well, I bought it in December 213 for forty bucks and change. Those shares are up 16%. I do not call that approaching its all time low in 2006-07. It may be, but I do not call it that.

timing is everything ..for the rest of us here are the relative annualized returns of SO vs its index

1YR SO -7.9 XLU 15.95
3YR SO 6.16 XLU 9.83
5yr SO 3.84 XLU 14.80

[SleepyInSeattle]

SO: sold my shares today. Just a gut feeling/ will repurchase when and if it corrects more. I replaced it with CBLpD, a preferred paying 7.75% - we'll see how it goes.

[User 929333]

why would you sell LOW! Thats just crazy! and they are going lower, just buy more!

[Dividend Sensei]

I would never trade around a core holding like that, especially based on a gut feeling.

Market can be crazy in the short-term but steady, safe and growing dividends are the lifeblood of long-term wealth.

[SleepyInSeattle]

GmanIV: Why sell low? All right, here's my thinking:

SO:
Moving Av. ------- Price$ ------- Slope
Today ------------- 47.14 ------- DOWN
10 Day-------$47.26 DOWN
21 Day------- 49.23 DOWN
50 Day------- 49.65 DOWN
200 Day ----- 49.75 DOWN

It's on a down slope - It's been for more than 200 days - it could suddenly start going up, but my instinct tells me it will lose more steam, which will give me an opportunity to re-enter and purchase more share at a better price, while capturing the small gain I made since my purchase.
In the meanwhile, by purchasing the preferred CBLpD paying 7.75%, I am losing nothing in terms of dividends and I can use these divs to repurchase SO at a lower price. And I am betting on SO going lower.
Now, if SO goes up in price, I may not be able to repurchase at any lower price than I sold it, so yes, it is a bet or a gamble, if you wish.
I already own UTG (Reaves Utility Income Trust) and PPL to take care of my uts allocation. I reduced PPL to capture a very nice profit, moved the money to other preferreds. PPL kept on going up after I reduced, but, again, my preferreds are paying me a higher div, so no harm done.
I am not selling UTG, though. It gives me 5.54% - it's gone up quite a bit since my purchase.

[User 47998195]

Next Era Energy would be an excellent investment if the likelihood of a market correction wasn't as large as it now is at $143. per share, up well over 25% over the past 12 months. Large-Cap, Public, Regulated Utilities, that have risen as much as 'NEE' has don't have a great history of future performance. That's even true of MMM, which after it rose, as it has over the last year, which was 2014; from $120 to about $160 and then back down to around $130, twice before its last run up to over $215.!

We would invest heavily in Next Era at prices, at least 5% lower than they are now because, for 1 thing, who would scare investors away from 'NEE' due to 'Amazon fever'.

[Dividend Sensei]

Fair enough.

NEE is probably my favorite regulated utility, courtesy of its industry leading dividend growth rate.

Of course that means a high premium that never seems to decline.

Market correction is now 8 months overdue but that might might stretch to 2 years, given how infrequently corrections happen these days.

[Dividend Sensei]

I'm a big fan of AWK and WTR, as well as D, NEE, and WEC.

Back when I owned 200 stocks I owned them all.

Had to consolidate down to 96 stocks (too much work to track 200) but their fundementals are excellent.

As for energy, that's the most hated industry right now, and where I am focusing all my new capital for the foreseeable future.

XOM is the gold standard of producers, though I prefer to focus on the midstream space.

My portfolio includes 20 Midstream MLPs that I consider to have generous, safe, and growing payouts, no matter what crude or gas prices do.

I'm hoping that oil remains cheap for the next year, because that's how long I estimate it will take me to build out full positions in all of them.

By that point I'm hoping that higher interest rates will have beaten down REITs so I can then focus on them.

As for utilities? Well it depends. In the short-term rates may bring those down, so great buying opportunities.

However, because utiliites are a VERY low beta industry, any pullback is likely to be small, maybe 5% to 10%.

[User 929333]

dealing with 20 k-1's must be a pain the you know what! 96 stocks is still a ton! I wont let myself ever get above 20 stocks, just give me the best of the best and divisified and keep it simple!

[Dividend Sensei]

Not so bad actually.

Turbo Tax streamlines it to just 3-5 minutes per K-1.

I get everthing else done, and then wait for K1s to arrive and do them as they come in.

By April 1 or so, they stop and I submit my taxes, taking advantage of Turbo Tax's 50% off discount (wait for it, they always do it).

As for 96 stocks, sure it's a lot. Then again, I'm a very hands off investor.

I carefully selected each one to provide a generous, safe, and growing payout, and check in once a quarter to make sure that's still the case.

The rest of the time I don't have to track anything, other than if something drops and I buy it on the dip.

In the future I might consolidate further or diversify back to 200.

My current plan is to weight by yield across all of them, priority to MLPs as long as oil is $45 or under.

Once I've fully finished each position (I estimate $1 million or so in invested capital, so a long time) I'll go back through and re-weight ($1100 per % of yield rounded up instead of $1000) and add back in a quality high-yielder, (such as WPC or IRM).

Then each time I make it through the portfolio, I might add back in one of the company's I had to remove.

By the time I get back to 200, (decades from now) I'll have probably invested $5 to $10 million and the portfolio will be providing me daily dividends of impressive size, about $50,000 a day or so.

Nice liqudity to retire on, I'd say, while investing at least 50% of the post tax income stream, with 25% going to my favorite charity, and 25% funding an exponentially growing standard of living.

[User 929333]

I agree on MLP's with oil being so, golden buying opportunity!

[jwadtw]

I don't think I'll let go of SO. It's been dripping away for many years to my satisfaction, and I add from time to time. I regard Duke the same way, though I don't own it.

SO has a protected moat, serves a friendly market and regulatory regime, pays a solid and proven-to-grow dividend and, right now, is trading at the bottom of its 200 day MA. I'm thinking it's a good time to buy some more.

At age 66, I'm more interested in dividends and preservation of capital. A 2% return on my portfolio is adequate to fund my moderate lifestyle, hence I tend toward the conservative, while having a small corner (about 10%) of net worth set aside for playing options and taking a few chances. My SO is outside of that as a core holding.

[Dividend Sensei]

Good for you. Like I said in the article, I like SO, and their long-term plan.

Not as confident in management's guidance due to its poor execution track record, but you certainly won't lose your shirt owning it.

[Dr. Polaris]

A variety of investment grade Regulated Utilities, including mostly regulated Southern Company as well as Next Era Energy, would seem 'indispensable', as a foundation. Water Utilities, like Aqua America, 'WTR', American States Water, 'AWR', American Water Works, 'AWK', are worthy and have surprisingly high 'CAGR' for both 'Earnings' and 'Dividend' growth, with 'AWR' being a special case with over 60+ years of consecutive dividend increases, and a 5 year average dividend increase above 8%. They're all a bit pricey, but so is 'NEE' and 'NEP'.

My dad has utilities, second only to Energy, which starts Exxon in 3 separate accounts, and the largest member of a 27 component trust he set up in the last century. Overall, he keeps 2/9 in Exxon and has been adding shares in 2017, for the 1st time since he held Mobil and Exxon separately. His 'cost basis' on those shares, with dividends subtracted are around zero since he has been adding since 1960.

[User 929333]

I love water stocks but they are ALL super over valued at this present time

[User 929333]

SCANA is a very strong up and coming Utility!

[Besdayz]

Looking for yield > 5.0%

[User 929333]

4.90%...very close

[SpiceyDiceyLifey]

I didn't see any comparisons to DUK?

[Dividend Sensei]

In the future I'll do some compare/contrasts with DUK.

While it's an OK utility I have plenty of better alternatives such as WEC, D, NEE, not to mention yieldCos like NEP and BEP.

[User 929333]

Duke has not shot up to crazy levels the past 5 years like most Utilities have, I think its prob the best value play right now along with SO

[Dividend Sensei]

Thanks for the tip.

I'll have to take a look at it.

[George Fisher]

I agree with those that comment this article is not an apples to apples comparison. The articles compares a yieldco with a $2 bil market cap with a diversified regulated utility with a market cap of $50 billion. NEP pays a still hefty fee in the form of IDRs with 25% of all future cash flow available for distribution above $1.41 per share goes to the management team. There is a great reason other MLPs bought their general partners. I would prefer the compairon was between NEP and other yieldcos or other MLPs.

I am looking to add more SO when the write-off is announced and the weak hands are throwing in the towel. Look for a down day on high volume. If the stock was trading at $50 before they were thrown under the bus by the Mississippi PUC, and the write off is $3.5 bil (or $3.50 per share, before tax benefits of about $1), a buy price in the $46 (vs $47.29) currently or less range would seem appropriate.

[RoseNose]

I can always count on you George to know the utility happenings.
I thought it was dropping nicely to a price even ole bargain hunter Rose would like.
That explains it.
Much appreciated and glad I follow you.
Rose :))

[1504661]

SO 'has been' a great company in the past, but Im very weary of its uncertain future.
Guess who is going to pay for Vogtle? - the shareholders, one way or the other. no thanks.
not interested in any utilities at current prices.

[usiah]

Don't think I'll "Forget Southern Company" in favor of NEP any time soon. (If I were to invest in NextEra, it would be NEE instead of yieldco NEP.)

Long SO and adding.

Retired income/dividend-growth investor