What happened

Utilities don't typically produce market-smashing returns. That's what makes Southern Company's (NYSE:SO) 2019 so spectacular: It delivered an eye-popping 45% gain last year, according to data provided by S&P Global Market Intelligence. That easily outpaced the S&P 500, which rallied an impressive 28.9% in 2019. Add in dividends, and the outperformance widened to a total return of 51.7% for Southern versus 31.5% for the S&P.

Here's a look back at what powered Southern Company's strong year.  

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Image source: Getty Images.

So what

Southern Company delivered stronger-than-expected financial results through the third quarter, with its performance in that period especially strong. It generated $1.34 per share of adjusted earnings, which topped the consensus estimate of analysts by $0.20 per share. Because of that, the company expects its full-year results to be at or slightly above its guidance range. 

Meanwhile, the utility also got some good news on the regulatory front as the Georgia Public Services Commission approved a rate increase for its Georgia Power subsidiary. On top of that, it continued to make progress on its Vogtle nuclear project, which is on track to start up in the 2021 to 2022 timeframe. However, the company did experience some setbacks on two gas pipeline projects. Because of that, both likely won't enter service until 2021. 

However, investors overlooked those setbacks and piled into shares of Southern and other utilities because their high-yielding dividends are becoming increasingly attractive in an environment where the Federal Reserve is cutting interest rates. Yield-seeking investors see utilities like Southern as a lower-risk way to collect a high-yielding income stream as the payouts on bonds decline with interest rates. 

Now what

Shares of Southern Company aren't as attractive as they were to start 2019 since its valuation has risen to about 20 times earnings, which is a bit rich for a slow-growing utility. Meanwhile, its yield has fallen to around 3.9%, which isn't as enticing as other options in the energy sector. Because of that, yield-seeking investors might want to look elsewhere, with several pipeline stocks in particular looking quite compelling right now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.