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Why Southern Company Stock Has Underperformed Its Peers

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Southern Company’s performance

Utility giant and dividend aristocrat Southern Company (SO) has one of the best dividend profiles in the S&P 500 Utilities Index. However, it has significantly underperformed the broader utilities in the last one-year, three-year, and five-year periods.

Southern Company stock rose just 5% while the Utilities Select Sector SPDR ETF (XLU) surged a mammoth 50% in the last five years. The SPDR S&P 500 (SPX-INDEX) (SPY) rose 72% during this five-year timeframe.

So, what went wrong for Southern Company in the last few years? How is the second-largest rate-regulated utility set for the future?

Southern Company has been struggling with its ongoing power plant issues over the last few years. Its under-construction power plants have dented its balance sheet in the last few quarters and importantly, may continue to do so going forward.

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Vogtle worries

Southern Company currently sees Plant Vogtle as a worthy investment when US nuclear generation is tackling crucial challenges. Lower power demand, cheaper natural gas, and renewables have pushed wholesale power prices down, which subsequently made nuclear generation less profitable.

President Trump seems to be in favor of supporting nuclear power, and his stance may play a crucial role in the fate of Plant Vogtle. The cost of Plant Vogtle has jumped from $14 billion in 2008 to beyond $25 billion.

Mississippi’s Kemper County power plant is a similar project for Southern Company. The plant had an original cost estimate of $3.0 billion. However, after running more than three years behind schedule, the plant’s costs have shot past $7.5 billion.

Earnings are shielded for now

Southern Company’s (SO) management expects its earnings per share growth to stay within the industry average (XLU) range. For now, its power plant woes are not expected to hamper its earnings and dividend growth.

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