One of the biggest regulated utilities, Southern Company (SO), is the top-rallying stock in the sector this year. It’s up more than 40%, while utilities at large are up about 20% so far this year. After its steep rally, let’s see how institutional investors look at Southern Company.
Southern Company: Top institutional investors
The Vanguard Group was the top institutional investor in Southern Company at the end of the third quarter. It added net 2.4 million shares of the utility and held around an 8.6% stake as of September 30. BlackRock Institutional Trust Company added approximately net 2 million shares and held around 5.2% in Southern Company at the end of the third quarter.
The Vanguard Group is also the top institutional investor in peer utility stocks NextEra Energy (NEE) and Duke Energy (DUK). It held more than 9% of NextEra Energy and 8.4% in Duke Energy’s total outstanding shares as of September 30. State Street Global Advisors and T. Rowe Price Associates also added to their existing stakes of Southern Company in the third quarter.
Federated Equity Management Company of Pennsylvania and Hotchkis & Wiley Capital Management were some of the top sellers. They sold net 2 million and 1.7 million shares of Southern Company, respectively, during the quarter.
Why Southern Company?
Southern Company seems to have a relatively strong footing regarding its controversial Plant Vogtle this year. The only under-construction nuclear power plant, Vogtle has dented the utility’s financials with cost overruns and several delays. So far in 2019, the project hasn’t reported any cost changes. It also seems to be on track to achieve its 2021 and 2022 deadlines. The project has been delayed for more than five years and is estimated to cost more than $27 billion, double its original price.
Southern Company’s EPS increased to $1.34 per share in the third quarter compared to $1.14 in the previous year’s quarter.
Apart from these fundamental developments, the overall market sentiment was also encouraging for utilities this year. Market uncertainties pushed investors to relatively safe utility companies. Utility stocks are generally slow moving and pay stable dividends.
Also, interest rate cuts further boosted these defensives in the second half of 2019. Southern Company stock has rallied more than 12% since the Fed cut benchmark interest rates for the first time in July this year. The Fed has cut interest rates three times so far in 2019. Lower interest rates usually make utilities’ dividend yields look more attractive. Thus, investors switch to these defensives when rates are cut.
Utilities and dividends
Southern Company’s long dividend history also makes it attractive. It has raised dividends for the last 18 consecutive years and hasn’t lowered them for 70 years. It’s currently trading at a yield of 4%, higher than the peer average. Read more about Southern Company’s dividend profile in Southern Company’s Dividends Compared to Its Peers.
The biggest utility, NextEra Energy (NEE), is trading at a dividend yield of 2.2%. The Utilities Select Sector SPDR ETF (XLU), the representative of the country’s top utilities, yields 3%. NextEra Energy stock is up about 35% so far this year. Duke Energy, the second-largest utility stock by market cap, is up just 3% for the year.
Many top utilities have surged to their all-time highs in the last few months largely due to a supportive broader market environment. Their steep valuation might concern investors. However, even if their market performance looks capped from here on out, their dividend profiles look stable. Read more in Top Dividend Stocks from Utilities to Combat Recession.