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Southern Company: Dividend Comfort

Apr. 12, 2021 8:23 AM ETThe Southern Company (SO)144 Comments


  • SO has had some issues with large projects.
  • Earnings, revenue, and dividends have increased anyway.
  • Priced under $66, SO looks like a good value.
  • Looking for a helping hand in the market? Members of High Dividend Opportunities get exclusive ideas and guidance to navigate any climate. Learn More »

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PendragonY profile picture

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I have been a software engineer developing applications in various fields for over 30 years. I began investing in mutual funds for my 401(k) back in 1988.I started investing outside of my retirement account a little over 23 years ago. I used to follow a value oriented strategy, but after I saw how that worked  during the financial crisis, I began to switch over to a more income based approach. I have been an income investor since around 2009 and have only written income investor focused articles for SA.

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One of my most profitable picks turned out to be Freddie Mac, which I originally chose because I liked the dividend and because I once worked there. When it first ran into problems I increased my holdings because it still looked like a good value to me. I eventually managed to buy several thousand shares at a cost of $0.50 (I knew that was a good value) and eventually exited the stock at a price that was $5 a share above my average share cost.
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Comments (144)

rjm22 profile picture
UBS Adjusts Southern Co.'s Price Target to $71 From $67; Buy Rating Kept
MT NEWSWIRES 8:48 AM ET 4/22/2021

KeyBanc Adjusts Southern Co.'s Price Target to $68 From $65, Maintains Overweight Rating
MT NEWSWIRES 5:54 AM ET 4/21/2021

Morgan Stanley Adjusts Southern Company PT to $62 From $57, Maintains Underweight Rating
MT NEWSWIRES 10:03 AM ET 4/20/2021
Eileen Dover profile picture
@rjm22 I am ready to pull the trigger on SO @ 52.
rjm22 profile picture
@Eileen Dover You might have a very long wait-
Eileen Dover profile picture
@rjm22 I'll hold my utility funds @ 6-8% distribution (no cuts ever) until SO, DUK, ED drop down when the interest rates go back up (2022 ?).
rjm22 profile picture
Analyst Actions: Credit Suisse Raises Southern Co.'s PT to $73 from $68, Expects Q1 Adjusted Earnings In-Line with Consensus; Keeps Outperform Rating
@rjm22 , That makes sense!
castle profile picture
Majority of electricity produced by cheap coal plants... what happens to bottom line when they are forced to convert
PendragonY profile picture

Well, actually SO has been converting from coal plants to mostly natural gas plus some renewables. For SO in 2020 only 17% of its power was generated by coal plants.
Vandooman profile picture
Sooner or later we will, as a nation, prioritize nuclear as a clean source of power, but probably only when we start to choke on the air we breath. Bill Gates points out that natural gas will reduce greenhouse gas emissions in the next ten years but it isn't a solution long term. In fact it could just divert resources.
castle profile picture
@Vandooman and we all know that Bill Gates, software developer is an expert on energy matters 😂😂😂😂
@castle , So he says!
peace 2 u profile picture
Southern refinances its debt by issuing new debt and a "kicker" for expansion; it is almost a Ponzi scheme.. This is how utilities have financed debt for years and years; it just continues to exist forever without a meaningful effort to pay it down. It only works because the utility regulators allow the debt to be included in its "rate base" for setting rates.

It is the way which "Ma Bell" operated. The break up of "Ma Bell" resulted in several small companies each of which was saddled with a lot of debt. For the most part, the results were not great.

Since I would not want to be holding any SO stock when the regulators change their perspective, I cannot recommend it for "orphans and widows."

Just a thought or two.

Gridbird profile picture
@peace 2 u Regulators actually want debt to amortize the long term expense and use of the capital invested.
PendragonY profile picture
@peace 2 u

Thanks for sharing your opinion. But in fact, debt gets paid down all the time. Each project is expected to be paid off.
Eileen Dover profile picture
@PendragonY When the interest rates are increased (by 2022), the borrowing rates will cause the debt load to increase and the utility stocks will be on sale big time. Wait them out
tizod profile picture
I look at SO by comparing to other UTE's and I cannot do SO. Risk with nuke and some other items is just too high. I'd go elsewhere, even if .5% lower divvy. Many to choose from.
PendragonY profile picture

Most of the risk with the nuclear plants is passed. Plenty of other utility companies have nuclear reactors. Nukes supply 20% of the electricity in this county.
tizod profile picture
@PendragonY I think you mean the indemnification and operating. SO has the risk of new plants, cost overruns, failure to get full operating approvals at budget amounts etc. These risks are draining in more ways than just the capital. I stand by my comment, call it oerations risk. I agree a 10 year old nuke plant (heck even to 30 years) has minimized risk - until it hasn't if something goes wrong. So I avoid.
PendragonY profile picture

Um, I don't think there are currently any operating nuclear plants that are only 10 years old. Last one was built back more than 3 decades ago.

So you avoid both $DUK and $D?
Eileen Dover profile picture
Under 66 ? Too high. Even at 62 now, too high. Wait for the low to mid 50's to stock up at a decent yield close to 5% where it had always been until the past year or so..
@Eileen Dover I agree. He writes an article discussing the company's problems, then says it's a good investment. When a person explains further problems. He knocks the person for doing it. The dividend is safe since the state laws and regulatory agencies support the company. The stock is way too high.
PendragonY profile picture

Yes, it has had some problems and yet the revenue, EPS, and dividend continue to grow. Those problems are mostly behind it, so it's an even better investment than it was in the past.
@PendragonY Of course. When you have a multistate utility monopoly and control state regulators, you can borrow your way out of the problems you and I have identified in this company. I don't wish to argue with you, my friend. You are convinced this is a good investment. Not even my or your arguements that show years of management issues will convince you otherwise. As long as they can sell bonds they will be fine.

Any company that pays dividends has been bid up too high as Eileen says. The whole utility sector is too high.
Longbottom profile picture
Thanks for the write up. Do you know if they're putting these


anywhere close to the Georgia reactors? LFTR's can cut down on the fuel costs of conventional nuclear by using some of the waste as fuel. I was tempted into a long position as soon as I read they were spending R&D money on the old tech from the 60's.
PendragonY profile picture

The initial test facility is in Everet WA, so not near one of Southern's plants.

But if that works as expected I would think the Southern would put the first commercial plant near some of their other reactor sites.

Border Dawg profile picture
Thank you for the article. I own SO and am a customer as well. Not surprised with the delays at Vogtle, even before COVID. Happy with the dividend and hope they announce an increase this month.
PendragonY profile picture
@Border Dawg

Yeah, I expect an increase soon.
Have been holding SO for years as one of several utilities I own. Have added along the way, and intend to keep holding.

Thank you for the fine SO rendition, PendragonY.

Retired dividend-growth investor
PendragonY profile picture

Glad you liked the article. I like where SO is at the present time. It's a good solid dividend and a reasonable price.
@PendragonY No way do I pay over 60
Eileen Dover profile picture
@jimoc Even 60 is too high. Mid to low 50's is fair.
Dragon Pen,
Thanks for the analysis of SO.
How do you compare SO with OGE. SO has nuclear exposure. SO and OGE both have mid-stream assets, except OGE will have 7-9% ownership stake in ET ( after ET closes the ENBL acquisition) and receive ET divys rather booking ENBL losses. Thanks.
From Baja Oklahoma.
Dividend Digging Armadillo
PendragonY profile picture
@Dividend Digging Armadillo

I need to look at OGE again. The last time I looked at OGE, I didn't like it but in large part that was because of its holding of ENBL. With that basically sold off, OGE might be a good investment.
Thanks Pen Dragon.
A bought a full position averaging below $30, with a 5.25% yield. OK and western Arkansas slowing growing. Hope may be able to provide power to TX ERCOT electric grid In future since OGE has I-35 corridor in service area.
@Dividend Digging Armadillo

I bought a nice stake in OGE last year. Looks to be a solid dividend-growth utility hold.
I own it. It may a Hold, not a buy. May be a sell. I do not see a $66 price, which may now be a concern for me. I have a nice gain in it thus far. Not sure if it well go higher for me.
PendragonY profile picture

I am not predicting that the price will hit $66. Rather that is the value of the dividends I expect to collect in owning it. So I want to buy below that amount.
I sold some in February of 2020 for $70.50/share. My original purchase was at $45.40/share and I just couldn't resist taking some profits. I really lucked out in that move. I still hold some and probably should have added some when the price came back down but I didn't.

All to say that it is quite capable of getting to 66 and beyond.
PendragonY profile picture

I expect to see the price pop when they announce the dividend increase. But we will see. The price right now is a good one.
It pays a 4.08% dividend...not bad.
Eileen Dover profile picture
@kimbillro 4.08% IS bad when utility CEFs that never cut distributions in 20-30 years like UTG & DNP yield 6.5 - 7.8% ?
PendragonY profile picture
@Eileen Dover

They are using leverage and a lot of capital gains to get that. Here the yield is just from the dividends.
SO is as safe as can be with dividends. It does what it wants in southern states that value companies over people. It pollutes with no forethought or concerns. It's a safe investment since it's never held accountable for mistakes.
PendragonY profile picture

If that is your feeling, you should probably not invest in SO.

Thanks for sharing.
@PendragonY Its not a feeling. It's what they do. I live in a southern company state. I watch them operate. Very safe investment. ESG? Nope. Could they do better? Of course. However why should they when they control state regulation agencies. You are the one that pointed some the problems out in the article. Coal ash? No problem. Dumping close to Mobile bay which is easy to rail or barge it in. Environment? Who cares? Not the company or state. Will they be held accountable? If they are big bucks will be shelled out.
PendragonY profile picture

They are cleaning up the coal ash ponds, just like every other utility that had coal plants.
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