Southern Company’s yield
Southern Company (SO) is one of the highest-yielding utility stocks among the S&P 500 Utilities Index (XLU). At 4.8%, Southern Company stock is trading at a vast yield premium to utilities’ average yields. Southern Company’s stable dividend growth and the stock’s decline can be attributed to its superior yield.
In comparison, the Utilities Select Sector SPDR ETF (XLU) is currently trading at a dividend yield of 3.6%. Duke Energy (DUK) stock is offering a dividend yield of 4.2% while NextEra Energy (NEE), the leader in renewables energy, has a strikingly low yield of 2.6%.
Although Southern Company currently has a higher yield, its dividend growth was much lower than the industry average. In the last five years, Southern Company’s dividends per share rose 3.6%, compounded annually. In contrast, utilities increased their average dividends 4.2%, compounded annually.
Duke Energy increased its dividends 2.5% while NextEra Energy’s dividends rose 10%, compounded annually in the last five years.
Southern Company and Duke Energy expect their dividends per share to grow in line with the industry average, in the 4%–6% range. NextEra Energy is expected to be an outlier with expected dividend growth of nearly 13%, more than double the average.
Utilities generally pay a large portion of their earnings in the form of dividends. So, their earnings growth plays a crucial part in dividend growth. Although Southern Company’s earnings were recently hit by losses recorded on its Kemper plant, its earnings are relatively stable due to the heavy contribution from its regulated operations.
Both Duke Energy and Southern Company expect their earnings per share to grow 4%–6% annually for the next few years. NextEra Energy’s earnings are expected to see annual growth exceeding 10% for the next few years, which could facilitate its above-average dividend growth.