Forward dividend yield
As of June 28, 2016, Southern Company (SO) is trading at a forward dividend yield of 4.4%. A company’s forward dividend yield is calculated by dividing its estimated one-year future dividend per share by its market price per share.
Utilities trade lower than their average yields
The chart above shows Southern Company’s forward dividend yield with its three-year historical average. The historical average stands at 5%. Peers Duke Energy (DUK) and PPL Corporation (PPL) are each trading at forward yields of ~4%.
Almost all the utilities have shown the same trend of trading below their historical average yields for the last six months. Their steep climb in the same period could be one of the reasons they’re trading below their average yields.
Generally, regulated utilities tend to have lower yields than unregulated ones, since regulated utilities (RYU) have relatively stable earnings. Higher risk is expected to be compensated by higher yields.
The PowerShares S&P 500 High Dividend Low Volatility ETF (SPHD) is a fund that tracks 50 stocks filtered from S&P 500’s 75 highest dividend yielding stocks. SO makes up nearly 2% of SPHD’s total portfolio.
We should also note that utilities make up nearly 19% of SPHD, and so SPHD represents a strong investment alternative for conservative investors interested in fetching dividend income with relatively lower risk.