Southern vs. ExxonMobil: Which Stock's Dividend Dominates?

Dividend stocks outperform non-dividend-paying stocks over the long run. It happens in good markets and bad, and the benefit of dividends can be quite striking: Dividend payments have made up about 40% of the market's average annual return from 1936 to the present day.

But few of us can invest in every single dividend-paying stock on the market, and even if we could we're likely to find better gains by being selective. Today, two energy companies -- one in petroleum, the other in electricity -- will square off in a head-to-head battle to determine which offers a better dividend for your portfolio.

Tale of the tape
Established in 1945, Southern Company (NYSE: SO  ) is the fourth-largest electric utility holding company in the U.S. Headquartered in Atlanta, Ga., the company operates four regulated utilities with a total generating capacity of nearly 46,000 megawatts, and serves more than 4.4 million customers in Georgia, Alabama, Florida, and Mississippi. Southern also offers fiber-optic and wireless communications services through its Southern Telecom and SouthernLINC Wireless units. It is also building the first new nuclear plants in a generation near Augusta, Ga. Southern is also involved in the development of a state-of-the-art coal gasification plant and it also operates one the largest photovoltaic and biomass plants in the U.S.

ExxonMobil (NYSE: XOM  ) , the world's largest oil and gas producer, was formed by the merger of two direct descendants -- Exxon and Mobil -- of Standard Oil, which was founded by John D. Rockefeller in 1870. It is also the world's third-largest company by revenue and the second largest by market capitalization. Exxon operates 37 refineries in 21 countries with a combined processing capacity of 5.4 million barrels per day, which is more than the total oil and gas produced by several countries around the world. The company has also entered into a strategic alliance with Russian oil and gas behemoth Rosneft to carry out exploration and development activities in Russia, the United States, and other parts of the world.

Statistic

Southern

ExxonMobil

Market cap

$36 billion

$434.4 billion

P/E ratio

21.4

13

Trailing 12-month profit margin

9.6%

7.7%

TTM free cash flow margin*

0.2%

2.9%

Five-year total return 

45.3%

50%

Source: Morningstar and YCharts
* Free cash flow margin is free cash flow divided by revenue for the trailing 12 months.

Round one: endurance (dividend-paying streak)
Southern has paid uninterrupted dividends for a period of more than 65 years, since it first paid in 1948. But Southern's 65-year dividend-paying streak can't hold a candle to Exxon, whose dividend history as a separate company dates all the way back to 1911 and which can trace its dividend history to the days when Rockefeller still led Standard Oil. Exxon's dividend streak of 103 years hands it the endurance crown without a fight.

Winner: ExxonMobil, 1-0

Round two: stability (dividend-raising streak)
According to the DRIP Investing Resource Center, ExxonMobil has increased dividend payouts for nearly 31 years in a row. Southern has increased its dividends for a continuous period of 12 years. That's a second easy win for ExxonMobil here.

Winner: ExxonMobil, 2-0

Round three: power (dividend yield)
Some dividends are enticing, but others are merely tokens that barely affect an investor's decision. Have our two companies sustained strong yields over time? Let's take a look:

SO Dividend Yield (TTM) Chart

SO Dividend Yield (TTM) data by YCharts

Winner: Southern, 1-2

Round four: strength (recent dividend growth)
A stock's yield can stay high without much effort if its share price doesn't budge, so let's take a look at the growth in payouts over the past five years.

SO Dividend Chart

SO Dividend data by YCharts

Winner: ExxonMobil, 3-1

Round five: flexibility (free cash flow payout ratio)
A company that pays out too much of its free cash flow in dividends could be at risk of a cutback, particularly if business weakens. We want to see sustainable payouts, so lower is better:

SO Cash Dividend Payout Ratio (TTM) Chart

SO Cash Dividend Payout Ratio (TTM) data by YCharts

Winner: ExxonMobil, 4-1

Bonus round: opportunities and threats
ExxonMobil may have won the best-of-five on the basis of its history, but investors should never base their decisions on past performance alone. Tomorrow might bring a far different business environment, so it's important to also examine each company's potential, whether it happens to be nearly boundless or constrained too tightly for growth.

Southern opportunities:

ExxonMobil opportunities:

Southern threats:

ExxonMobil threats:

One dividend to rule them all
In this writer's humble opinion, ExxonMobil has a better shot at long-term outperformance thanks to its multiyear leadership in the oil and gas industry. The company has a large amount of recoverable oil and gas resources around the world, but it has been suffering from pricing difficulties in crude this year. On the other hand, Southern has been aggressively investing to diversify its business portfolio, and a focus on low-cost power generation should provide competitive advantages over its peers. This alone might not be enough to offset its limited reach and regulatory opposition to its efforts at pricing power. You might disagree, and if so you're encouraged to share your viewpoint in the comments below. No dividend is completely perfect, but some are bound to produce better results than others. Keep your eyes open -- you never know where you might find the next great dividend stock!

Looking for more great dividend stocks?
Dividend stocks can make you rich. It's as simple as that. While they don't garner the notoriety of high-flying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2776430, ~/Articles/ArticleHandler.aspx, 9/23/2014 10:26:27 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement