3 Reasons Southern Company's Stock Could Rise

Southern Company's stock has been in a rut – here are three reasons why this dividend stock might finally be ready to rise.

Aug 18, 2014 at 10:37AM

Southern Building

Source: Southern Company 

As the S&P 500 (SNPINDEX:^GSPC) has soared 40% over the past couple years, Southern Company's (NYSE:SO) stock has flatlined. With its oh-so-low valuation, now is the perfect time for wise investors to weigh the upside to this dividend stock. Here are three reasons Southern Company's stock could climb out of its rut and start to rise.

1. American economy recovers
While utilities can't control America's future, they're more directly impacted by its rise and fall than almost any other sector. Since electricity production and sales are highly regulated and price controlled, utilities need more Americans to use more electricity to grow profits.

Many utilities saw an artificial boost during the first quarter of 2014 when a colder-than-expected winter pushed residents to ramp up their thermostats.

But for Southern Company, higher sales have continued into Q2. The utility reported two weeks ago that retail energy sales increased 2.1% compared to Q2 2013, with industrial sales alone jumping 3.0%.

"Southern Company's second quarter industrial sales growth is an indicator of the potential for a broader economic recovery across the Southeast," said Southern Company Chairman, President, and CEO Thomas Fanning in a earnings press release. "Our commitment to provide clean, safe, reliable, and affordable energy has enabled us to continue to meet the needs of a region that's growing faster than the U.S as a whole."

If Southern Company's southern sales aren't just a fluke, but the beginning of an economic trend, then Fanning can expect to make many more self-congratulatory statements in the coming quarters.

2. Clean coal makes a comeback

Clean Coal

Source: Southern Company 

From its coal-centric roots, Southern Company has striven hard to reinvent itself as a more diversified, dynamic energy company. Natural gas now claims more (42%) of its 45,500 MW of generating capacity than coal (38%) or nuclear (16%).

But it has kept one foot in its old stomping grounds with its Mississippi Kemper power plant. Initially lauded as the solution to turning low-quality coal into clean electricity, the Kemper plant has been harangued with hold-ups and higher prices over the past couple years. From an initial price tag of $2.4 billion, Kemper's costs are now estimated at $5.5 billion. That makes it one of America's most expensive fossil-fuel power plants ever built, according to The Wall Street Journal.

But the plant went operational this week using natural gas, a major milestone toward its eventual coal operation. If Southern Company can get its plant online with no additional delays and costs, and if national policy continues to be conducive to clean coal technology, Southern may essentially have exclusive access to a cheap fuel source. Its generation costs will benefit, undoubtedly, but the real money-maker could come as other utilities scramble to solicit Southern for its lucrative technology, all the while burning volatile natural gas to keep power pumping to their own customers.

3. Dividends, dividends, dividends
Utilities have long been considered some of the best dividend stocks around – and Southern Company is no disappointment.

In July, the utility paid out its 267th consecutive quarterly dividend – not a bad track record for an interested income investor. And while other companies reduced or cut distributions during the Great Recession, Southern Company managed to steadily increase its payout, keeping debt decently in check throughout.

But since the dog days of the Great Recession, a "Great Recovery" has caused many investors to lose interest in dividend stocks. Since 2009, the S&P 500 has doubled its value compared to the Dow Jones U.S. Utilities Index, while the Dow Jones U.S. Growth Index has tripled.

^DJUSUT Chart

Source: YCharts

There may or may not be a tech bubble, a real estate bubble, or a [insert rapidly expanding sector here] bubble, but investors' sentiment isn't likely to remain bullish forever. As growth-hungry traders come to their senses, dividends could come back in vogue – and Southern's stock price, along with it. Over the long-run, dividend stocks have continually beat out their counterparts, and rejecting today's trends for tomorrow's returns could mean major moves for Southern Company's stock.

Diversify your dividend stocks
The smartest investors know that dividend stocks like Southern Company simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Justin Loiseau has no position in any stocks mentioned. The Motley Fool recommends Southern Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers