Southern Company’s (SO) management expects flat per share earnings growth in 2016 due to its bonus depreciation and share issuances to fund its AGL Resources deal. In the long term, it’s estimated to grow 5% annually, which is in line with the industry average.
Southern Company’s gas distribution operations, after completing the AGL Resources’ acquisition, expanded significantly. It will likely accelerate earnings growth in the long term. Southern Company seems well placed to deliver the expected dividend growth in the near future.
As you can see in the above graph, Southern Company stock severely underperformed utilities at large and the broader markets (SPX-INDEX) in the last five years. Southern Company stock only rose 1% in the past year, while the Utilities Select Sector SPDR (XLU) rose 8% during the same period. So, investors must be hoping for stable stock price movements that don’t erode the gains they receive from dividends.
Looking at a broader picture, utilities could become less attractive if the Fed raises rates again. In fact, the Fed has an aggressive rate hike target in place for 2017. Currently, any slow-paced rate increase probably won’t dent utilities.
Weather plays an important role in driving utilities’ earnings. The weather outlook for 2017 shows an expectation of higher electricity consumptionHawkish Fed or Helpful Weather: What Will Drive Utilities in 2017? on a year-over-year basis this year. Favorable weather will likely boost Southern Company’s earnings.
Read weather outlook for 2017 shows an expectation of higher electricity consumptionHawkish Fed or Helpful Weather: What Will Drive Utilities in 2017? to learn how utilities might be positioned in 2017.