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These Factors Could Drive SO’s Dividend Growth



What is the dividend outlook?

Southern Company’s (SO) present dividend yield of 5.4% has been driven by dividend growth and a price loss. Dividends rose 3% in both 2016 and 2017. Price loss further enhanced the 2017 yield. The dividend is projected to grow 1% in 2018.

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What is the projected dividend payout?

The company recorded a dividend payout of 77% and 76% in 2016 and 2017, respectively. The company has projected a dividend payout of 78% in 2018. The company has been unable to generate enough free cash flow balance to pay off its dividends due to high capital expenditure relative to its operating cash flow.

What drove the operating revenue growth?

Operating revenue grew 14% and 16% in 2016 and 2017, respectively. Retail, wholesale, and other electric revenues, natural gas revenues, and other revenues drove the growth in 2016. Every sector drove the operating revenue in 2017 offset by other electric revenue.

Dividend ETFs with exposure to SO

The First Trust Value Line Dividend Index (FVD) has a PE of 20.4x and a dividend yield of 2.1%. The WisdomTree US LargeCap Dividend ETF (DLN) has a PE of 20.1x and a dividend yield of 2.3%.

We’ll look at the company’s EPS performance, the future operating revenue, and EPS drivers in the next part of the series.


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