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SO Is Well-Situated for Higher Dividends in the Near Future

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Jan. 26 2016, Updated 7:23 a.m. ET

Dividend trends

Southern Company (SO) has a strong dividend payment history, and it has reported more than 67 years of consecutive quarterly dividend payments.

In April 2015, SO raised its dividend for the 14th consecutive year. In fiscal 2015, it distributed a dividend of $2.17 per share.

The above chart shows the dividends paid by Southern Company during the fiscal years.

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Dividend yields

Utility stocks (FXU) are preferred by conservative investors because of their higher dividend yields and smooth capital appreciation. Southern Company has a dividend yield of 4.7% as of January 11, 2016.

On average, utilities (XLU) have a dividend yield of near 4%. Leading utility Duke Energy (DUK) has a dividend yield of 4.7%. Utilities with more exposure to regulated operations have more stable earnings. Thus, they tend to pay higher dividends.

On the contrary, utilities with more business coming from unregulated operations tend to have more volatile earnings. Hence, dividends from these utilities have been falling over the last few years. Exelon (EXC) and FirstEnergy (FE) both have large exposures to their unregulated businesses and have seen volatile earnings. In 2015, due to the dismal performance of utility stocks, their dividend yields rose sharply.

After SO’s expected 2H16 merger completion with AGL Resources (GAS), its customer base will increase substantially. The company’s management expects earnings growth of 4%–5% annually with these expanded operations. Investors may see these earnings translated into increased dividend distributions in the future.

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