Dividend investors are always on the look out for good companies with great yields. Right now, Southern Company (SO 0.90%) and Altria (MO 0.12%) are two names that would top that list. But there's more to this comparison than yield.

Giants with good yields
Right now Altria is yielding around 5.1% and Southern's yield is about 4.7%. Both fairly juicy for companies that have long histories of dividend hikes. Altria's dividend has been increased each year since a major spin off and Southern's disbursement has gone up annually for more than a decade. Neither, however, is no-brainer stock choice.

Southern is one of the country's largest utilities, and it's undertaken an aggressive building spree. Right now it's got two huge projects under way: two nuclear plants and one high-tech coal plant. The coal project actually shows the difference between Southern and its competitors.

(Source: XTUV0010, via Wikimedia Commons)

While a fellow utility giant recently completed a coal facility using coal gasification, it decided not to attempt carbon capture. Southern went all the way, taking risks that others were clearly unwilling to take. Despite being an "old and stogy" utility, Southern is looking to the future, which it believes will include steadily increasing demand in its service areas. That said, cost overruns and delays at both of Southern's big projects have been a drag on its performance and shares.

Altria, meanwhile, is a giant in the tobacco space with about a 50% share of the U.S. market. The next largest competitor has an around 22% market share. Which points out the big news at Altria—it spun off its foreign operations as Philip Morris International about five years ago. It's big domestically, but emerging markets is where the industry's growth is most likely to come from. Domestic cigarette sales are slowly declining.

Safe or dying?
On that score, Southern would seem a clear winner. Although building expenses are a drag today, Southern operates in an industry that's expected to see slow and steady growth. Altria is in a space that is slowing getting smaller and has been for years. Worse, Altria is no longer directly involved in the foreign tobacco market after the Philip Morris spin off.

But does that mean there's no growth potential at Altria? If the recent past is any indication the answer is no. Tobacco is addictive, and Altria has been able to increase prices to offset volume declines. The proof is in the dividend pudding; over the last five years Altria's dividend has increased from $1.32 a share to $1.84. For comparison, Southern's dividend has increased from $1.73 to $2.01.

The slowly declining business at Altria led to a dividend advance of about 40%, while the slowly growing business at Southern led to a 16% increase. To be fair, Southern's big spending plans could lead to higher earnings and dividend growth down the line, but it's unlikely that such an uptick will keep pace with Altria's recent hikes.

And Southern's business isn't without competition. That sounds odd for what is basically a monopoly, but the power industry is changing. For example, rooftop solar installations are increasingly cost effective and allow Southern's customers to become erstwhile competitors. And, efficient lighting and machines are restraining consumption growth.

(Source: Gloriaricardi, via Wikimedia Commons)

Altria, meanwhile, is moving into smokeless tobacco and electronic cigarettes. Both are growing categories in the tobacco space. Moreover, Philip Morris is licensing Altria e-cig technology, which gives Altria a hint of exposure to foreign growth.


And you though investing was easy...
If you are a conservative investor, Southern is probably your best bet here. However, you'll be giving up a little yield and a lot of dividend growth potential. If you can handle some risk, Altria may have more life than a cursory glance at the tobacco industry suggests. And this leap of faith comes with a higher yield and more dividend growth potential than the play it safe route.

Investing is about looking under the covers...