This year has been special for regulated utility Southern Company (SO). Its stock has rallied more than 50% to all-time highs, beating broader markets. However, that’s just SO’s performance this year. Utility stocks generate healthy returns over long periods due to their stable dividends. How has it fared in the last decade?
Southern Company stock’s performance in the last ten years
Including dividends, Southern Company has returned 203% in the last ten years, beating utilities. In comparison, the S&P 500 (SPY) has returned around 250% in the same period.
Southern Company, which primarily operates in Alabama and Georgia, serves more than 9 million customers. As it generates revenue from regulated operations, its earnings are relatively stable. Although Southern Company’s EPS have been flat for the last several years, its dividends have increased every year this decade. The utility paid dividends of $1.80 per share in 2010, and it is set to pay dividends of $2.46 per share this year, representing compound annual growth of 3% in the last ten years. Southern Company’s dividend yield is close to 4% and has always been higher than the industry average.
Top utility stocks in the last decade
Peer stock NextEra Energy (NEE) and water utility American Water Works (AWK) have outperformed SO in the last decade. Including dividends, they have returned 525% and 600%, respectively. Among peers, NextEra Energy is the biggest utility by market cap but offers the lowest yield. Its unmatchable renewables portfolio and extensive regulated operations have driven above-average earnings growth in the last few years. American Water Works operates in 46 US states and serves approximately 14 million customers.
Though these returns are strong, they have been dwarfed by the top gainers in other markets this decade. Netflix (NFLX) has returned more than 3,700%, while MarketAxess Holdings (MKTX) has returned about 2,770% in the last ten years. Investors generally perceive utilities as “widow-and-orphan” stocks, meaning they switch to these more stable defensives amid broad market uncertainties.
Southern Company stock going forward
Southern Company’s strong performance this year has placed it ahead of other utilities. SO has been looking expensive for the last few months, and any upside potential from its current price looks capped. Additionally, Southern Company’s Plant Vogtle could concern investors. The delayed nuclear power project still has a couple of years to go before starting operations, and could impact the utility’s performance if it faces more hiccups. Finally, whereas falling interest rates have boosted utility stocks this year, they might not be a factor next year.
Last week, Credit Suisse raised Southern Company’s target price from $60 to $64, implying flattish movement next year. Utility stocks have been strong this year. To learn more, read Are Utility Stocks Losing Sheen after a Steep Run in 2019?