When it comes to dividends, achieving Dividend King status is considered a major achievement for a company. Although The Southern Company (NYSE: SO) is not one of the handful of utilities that have over 50 years of annual dividend increases required for Dividend King status, it is still worth looking into the company’s dividend history.
Starting Point for the Dividend
Southern’s dividend yield is around 4%, which is higher than the average utility yield of about 3.5% provided by the Vanguard Utilities Index ETF (NYSEMKT: VPU). Among the utilities that are Dividend Kings, only two have higher yields, but they are much smaller companies compared to Southern Company.
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To put this into perspective, Southern has a market capitalization of $74 billion, making it one of the largest public utilities in the country. In contrast, Black Hills has a market cap of $3.6 billion, and Northwest Natural has a market cap of just $1.4 billion. This shows that Southern Company operates in a different league compared to these smaller competitors, even though they are considered Dividend Kings.
So, when compared to the broader utility space and even other Dividend King utilities, Southern’s yield is quite attractive. But what about its dividend streak?
A History of Rewarding Investors
Southern Company has a streak of 22 consecutive years of dividend increases, which is impressive in itself. Although it falls short of the 50-year threshold for Dividend King status, it surpasses the low-end threshold of 10 years and is not far from the favored 25-year mark.
However, there’s more to the story. Despite facing challenges with the Vogtle project, which involved the construction of two large-scale nuclear power plants and experienced significant delays and budget overruns, Southern has managed to continue rewarding investors with modest annual dividend increases. This shows a strong commitment to dividends that goes beyond the 22-year streak.
In fact, Southern Company has held its dividend stable or increased it for an impressive 76 consecutive years. Throughout its publicly traded existence, the company has consistently increased or maintained its dividend, even during periods of economic turmoil such as the hyperinflation of the 1970s, the tech crash in 2000, the Great Recession, and most recently, the coronavirus pandemic.
All these factors taken together highlight the strong commitment Southern Company has towards its dividend. With an above-average yield compared to peers and a resilient dividend history, investors should consider this utility alongside, or even instead of, the traditional Dividend Kings like Black Hills and Northwest Natural.
Importance of Looking Beyond Numbers
While it can be helpful for investors to use certain metrics to evaluate stocks, it is crucial not to overlook important nuances. For example, Southern Company falls short of the 25-year threshold typically used to categorize elite Dividend Kings. However, its generous yield and long-standing record of supporting its dividend through various market conditions make it a dividend gem that requires a closer look.
Investing in dividend stocks for the long term may require some additional effort to uncover hidden opportunities like The Southern Company.
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Reuben Gregg Brewer has positions in Black Hills and Southern Company. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
