The past year hasn't been too kind to owners of Southern Company (NYSE:SO) stock. It's down about 7% while the market, as measured by the S&P 500, is up more than 18%. While it's not the worst performer within its peer group, the stock is far behind NextEra Energy (NYSE:NEE) which has performed nearly in line with the market as you can see in the following chart:
In looking at that chart we see that Exelon (NYSE:EXC) is by far and away the worst performer. Owners of that stock can pretty much peg its underperformance on the company's decision to cut its dividend earlier this year amid falling profits. Dividends haven't been a problem for owners of Southern Company's stock as the company recently raised the payout, marking the 12th strait year that the dividend has gone up.
As investors, before we can think about buying a stock we must first consider why others have been selling. The first place to start is to look at the generating portfolio. Here you'll find that Southern Company has generating capacity of 45,740 megawatts with a portfolio mix that includes 36% coal, 45% oil and gas, 17% nuclear and 2% hydro. These assets, as the name would imply, are concentrated in the south as you can see from the following map:
One thing that is noticeable off the bat is that the portfolio isn't as "green" as top-performing NextEra. Wind is really driving the performance at NextEra because the company is one of the world's largest generators of wind power with more than 10,000 megawatts of installed capacity. Wind represents 57% of the total generation capacity in its energy resources business.
That's not to say that Southern Company isn't growing its clean energy generation. The company is in the process of building the first new nuclear generation units to be built in the U.S. in 30 years. Those two units, Vogtle Units 3 and 4, are scheduled to begin operations in 2017 and 2018, respectively. The only problem here is that the market isn't all that fond of nuclear power these days, which is one reason why Exelon's stock has underperformed.
The reason for this is that natural gas prices are still pretty cheap in the U.S. That's affecting both the cost of coal and nuclear power. Cheap gas has really been driving a lot of the decisions at utilities like Duke (NYSE:DUK) and Dominion (NYSE:D); both making a big push to take advantage of that fuel. Duke for example is bringing natural gas generation from just 5% of its generating portfolio in 2005 all the way to 24% by 2015. That's a big driving force behind the company's plan to grow its earnings by 4%-6% annually through 2015.
Dominion, on the other hand, has big upside to natural gas not only in its generation portfolio but though its vast midstream operations. The company owns 11,000 miles of natural gas transmission, gathering, and storage pipeline in the Marcellus and Utica shales, as well as 947 billion cubic feet of natural gas storage capacity. Not only that but it's in the process of turning its Cove Point LNG facility into a facility that can export natural gas. The company's exposure to the growth in natural gas has helped keep its stock afloat over the past year.
So, while Southern Company's business might not be wind-driven or all gassed up just yet, that doesn't mean that its stock isn't something worth owning. The company's main focus right now is on nuclear, a move that could pay off handsomely over the long term. That's why with a 4.5% dividend and that clean nuclear upside, Southern Company has some of the qualities you'd look for in a solid stock for income generation. That's especially true when you consider that its dividend is tied with Duke's for the highest among this peer group. So, if you're looking for a utility to generate some solid income for your portfolio, then Southern Company stock is certainly a good stock to consider.
Fool contributor Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends Dominion Resources, Exelon, and 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.