What Could Impact Southern Company’s Dividends?
Southern Company’s dividend outlook
Southern Company (SO) estimates its earnings will rise 5% annually in the long term, more or less in line with the industry average. After completing the acquisition of AGL Resources, Southern Company’s gas distribution operations expanded significantly. The acquisition will likely accelerate earnings growth in the long term. Southern Company seems well placed to deliver the expected dividend growth of ~4% in the future.
As you can see in the below graph, Southern Company stock severely underperformed utilities at large and the broader markets (SPX-INDEX) in the last one year. Southern Company stock fell 1% in the last one year, while the Utilities Select Sector SPDR (XLU) rose 7% during the same period. So, investors must be hoping for stable stock price movements that don’t erode the gains they receive from dividends.
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Southern Company’s stock performance has suffered severely in the past few months due to construction delays and cost overruns at its Kemper County plant in Mississippi and its Vogtle nuclear plant in Georgia. To learn more about Southern Company’s power plant issues, read Southern Company: Westinghouse Issue Hints at a Thorny Path.
From a broader perspective, higher interest rates could affect utilities negatively. US utilities’ (XLU) dividend yield premiums over the ten-year Treasury yield have fallen significantly from more than 200 basis points in mid-2016 to less than 100 basis points now.
For ongoing updates on this industry, keep checking in with Market Realist’s Utilities page.