The top regulated utility, Southern Company (SO), is on a roll and has managed to rise more than 25% so far this year. It is currently trading at a dividend yield of ~5.0%, higher than peers’ average of 3.2%. Southern Company has increased its dividends for the last 18 years.
Southern Company offers the top yield, but notably, the company falls short of its peers in terms of dividend growth. Southern Company’s dividends per share rose ~3.0% compounded annually in the last five years. Peer Duke Energy (DUK) increased its dividends 3% compounded annually.
Long dividend payment history
Georgia-based Southern Company has paid a cash dividend for 285 consecutive quarters. It generates most of its earnings from regulated operations, which promotes stable earnings and stable dividends. The dividend stability is underlined by Southern Company’s long payment history. Southern Company aims to increase its dividends by 4% per year for the next few years, in line with the industry average.
Southern Company’s payout ratio was 110% in 2018. A payout ratio beyond 100% indicates that the company is paying higher dividends than its profits in that particular period. This situation is generally not sustainable in the long term. Duke Energy had a payout ratio of 97% last year, higher than its five-year average payout ratio.