Tag Archives: energy
Nasdaq Dividend Achievers: Southern Company
Summary Does Southern Company’s low volatility and high yield make up for its sluggish growth? See Southern Company’s impressive dividend history and competitive advantage analyzed. Southern Company makes a compelling investment case for risk-averse income-oriented investors. Southern Company (NYSE: SO ) is the third-largest publicly traded electric utility based on market cap. The company’s market cap of $40 billion is not far off from the only two larger electric utilities; Dominion Resources (NYSE: D ) with a market cap of $41 billion, and NextEra Energy (NYSE: NEE ) with a market cap of $45 billion. Southern Company supplies electricity to 4.5 million customers in Georgia, Alabama, Mississippi, and Florida. Southern Company is a member of the Dividend Achievers Index. Southern Company has paid steady or increasing dividends since at least 1982. The company has been paying dividends every quarter since 1948; one of the longer active streaks. The Dividend Achievers Index is comprised of businesses with 10 or more consecutive years of dividend payments. You can see the current list of all 238 members of the Dividend Achievers Index here . This article will look at Southern Company’s current events, competitive advantage, and future growth prospects. The company will be examined using The 8 Rules of Dividend Investing . The 8 Rules of Dividend Investing take a systematic approach to building a high quality dividend growth portfolio. Business Overview Southern Company generates 91% of its earnings from heavily regulated traditional utility businesses. The company generates the remaining 9% of earnings from its competitive wholesale electric business. Southern Company’s operations consist of the following subsidiaries and affiliates: Alabama Power Georgia Power Gulf Power Mississippi Power Southern Power Southern Nuclear SouthernLINC Wireless The company generates electricity through a variety of assets located throughout the South East, South, and South West United States. The image below shows the company’s electricity generating assets. (click to enlarge) Source: Southern Company March 2015 Business Overview Presentation Competitive Advantage Southern Company’s competitive advantage comes from its monopoly electricity provider status in the markets it serves. Electric utilities are natural monopolies due to the high cost of building power plants and the impracticality of moving your entire life because you don’t like your electricity provider. Southern Company is one of the largest publicly traded electricity companies. It has a long history of growth thanks to population growth and the controlled and highly regulated utilities market in the United States. The company’s strong competitive advantage virtually ensures slow and steady growth for years to come. Current Events & Growth Prospects Southern Company has experienced 2 recent setbacks. The company is building a coal gasification plant in Mississippi. The plant was originally expected to go online in May of 2014. Due to ongoing construction delays, the plant is now expected to go online during the first half of 2016. This 2-year delay has already cost Southern Company over $1 billion. The second setback for Southern Company is the ongoing delays in the two Vogtle nuclear plants. The contractor building the plants has stated that the construction completion date has been delayed by 18 months for each plant. Every month of delay will cost Southern Company an extra $40 million. The full 18-month delay is expected to cost over $700 million. Despite these setbacks, Southern Company is projected to grow earnings per share between 3% and 4% a year in 2015. This is a reasonable long-term earnings per share growth rate for the company. The GDP in the area is expected to grow at 3% in 2015, and Southern Company should match or slightly exceed this growth. As with most utilities, investors should not expect rapid growth from Southern Company. Total return should be between 7.7% and 8.7% from growth (3% to 4%) and dividends (4.7%). Recession Performance As one would expect from an electric utility, Southern Company’s operations were largely unaffected by the Great Recession of 2007 to 2009. The company’s earnings per share through the Great Recession and subsequent recovery are shown below to drive home this point: 2007: EPS of $2.28 2008: EPS of $2.25 2009: EPS of $2.32 2010: EPS of $2.36 2011: EPS of $2.55 The 8 Rules of Dividend Investing The sections below will compare Southern Company to other businesses with a long history of dividend increases using the 5 Buy Rules from The 8 Rules of Dividend Investing . Each rule has a short “why it matters” section, explaining why the rule is relevant. Rule 1: 25+ Years of Dividends Without A Reduction Southern Company has paid steady or increasing dividends since at least 1982 (when Yahoo Finance dividend data first starts). The company has paid regular dividends since 1948 and easily passes the first rule of dividend investing. Why it matters: The Dividend Aristocrats (stocks with 25+ years of rising dividends) have outperformed the S&P 500 over the last 10 years by 2.88 percentage points per year. Source: S&P 500 Dividend Aristocrats Factsheet Rule 2: Dividend Yield Southern Company has an extremely high dividend yield of 4.7%. The company has the eighth-highest dividend yield out of 156 stocks with 25+ years of dividend payments without a reduction. Southern Company’s high dividend yield should be especially appealing to income-oriented investors. Why it Matters: Stocks with higher dividend yields have historically outperformed stocks with lower dividend yields. The highest-yielding quintile of stocks outperformed the lowest-yielding quintile by 1.76 percentage points per year from 1928 to 2013. Source: Dividends: A Review of Historical Returns Rule 3: Payout Ratio Using adjusted earnings, Southern Company has a high payout ratio of 75%. The company’s extremely stable cash flows mitigate the risk of Southern Company reducing its dividend payments, however. Still, investors should not expect dividend growth ahead of earnings-per-share growth due to the company’s high payout ratio. Southern Company has the 144th lowest payout ratio out of 156 stocks with long dividend histories. Why it Matters: High-yield, low-payout ratio stocks outperformed high-yield, high-payout ratio stocks by 8.2 percentage points per year from 1990 to 2006. Source: High Yield, Low Payout by Barefoot, Patel, & Yao, page 3 Rule 4: Long-Term Growth Rate Southern Company has grown its dividend payments at 6.9% a year over the last decade. This growth will slow going forward. Management is projecting a target of 3% to 4% earnings-per-share growth going forward. As discussed in the growth section above, this number is a fair growth estimate for the company. With an expected growth rate of 3.5%, Southern Company has the 102nd highest growth rate out of 156 stocks with 25+ years of dividend payments without a reduction. Why it Matters: Growing dividend stocks have outperformed stocks with unchanging dividends by 2.4 percentage points per year from 1972 to 2013. Source: Rising Dividends Fund, Oppenheimer, page 4 Rule 5: Long-Term Volatility Southern Company has an exceptionally low stock price standard deviation of just 16.85%. This is the third-lowest in the entire Sure Dividend database, behind only Consolidated Edison (NYSE: ED ) and Johnson & Johnson (NYSE: JNJ ). Southern Company’s extremely low stock price volatility should appeal to risk-averse investors. Why it Matters: The S&P Low Volatility index outperformed the S&P 500 by 2 percentage points per year for the 20-year period ending September 30, 2011. Source: Low & Slow Could Win the Race Final Thoughts With an expected total return of around 8.2% from dividends (4.7%) and growth (3.5%), Southern Company offers investors decent total return potential. The company shines with its extremely low stock price volatility. Southern Company’s combination of high yield and low volatility carries it into the top 20% of stocks using The 8 Rules of Dividend Investing . The company should appeal to investors looking for low risk, high income, and slow but steady growth. Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
Dividend Growth Stock Overview: WGL Holdings, Inc.
Summary WGL Holdings provides over 1 million customers in the mid-Atlantic region with energy services. The company has paid dividends for over 160 years and raised them for nearly 40 years. The company sees gains in earnings of 8-16% in 2015; long-term objectives are to increase earnings by 5-7% a year. WGL Holdings has grown dividends by an average of 4% annually over the last 5 years and 2.5% over the last two decades. About WGL Holdings, Inc. WGL Holdings, Inc. (NYSE: WGL ) is a utility holding company with multiple subsidiaries serving Washington, D.C. and the surrounding areas. The company operates multiple subsidiaries, but its largest subsidiary is Washington Gas, which provides natural gas service to more than 1.1 million customers in D.C., Maryland and Virginia. WGL Holdings has more than 1400 employees and is headquartered in Washington, D.C. WGL Holdings’ operations include: Distribution/Regulated Utility: This operation distributes natural gas to Washington Gas customers and other regulated energy markets. Distributed Generation: This operation is responsible for designing, building and operating on-site energy systems. Included in this is the WGL Energy Systems subsidiary, which is responsible for WGL’s green energy solutions. Retail Supply/Energy: This operation markets and distributes energy to competitive and unregulated markets. Midstream: The midstream operation is run by the WGL Midstream subsidiary, which invests in and owns natural gas pipelines and storage facilities in the Midwest and Eastern U.S. and is responsible for supplying the wholesale market customers – including Washington Gas – with natural gas. In the 2014 fiscal year, which ended September 30, 2014, WGL Holdings reported net income of $105.9 million, up 31.9% from $80.3 million in the prior year (all figures are GAAP numbers). Earnings per share in 2014 were $2.05, up 32.3% from $1.55 per share in the prior year. The year-over-year growth can be attributed to an increase in earnings in the regulated utility and midstream energy services operating segments. Regulated Utility earnings increased 36% to $1.89 per share while Midstream Energy services earnings swung to a gain of 12 cents per share from a loss of 36 cents per share in 2013. This more than offset the 75% drop in earnings from Retail Energy operations. The WGL board expects that the 2015 fiscal year will see earnings grow by 8-16%, which exceeds the company’s long-term earnings growth objectives of 5-7%. The company is a member of the S&P Mid Cap 400 index and S&P’s High Yield Dividend Aristocrats index, and trades under the ticker symbol WGL. WGL Holdings’ Dividend and Stock Split History (click to enlarge) WGL Holdings has paid dividends for over 160 years and increased them since 1977. The company usually announces dividend increases at the beginning of February, with the stock going ex-dividend in April. In February 2015, WGL Holdings announced a 5.1% increase in its dividend to an annualized rate of $1.85. I expect WGL to announce its 40th annual dividend increase in February 2016. Like most mature utility companies, WGL Holdings has a record of very slow dividend growth. The recent dividend increase of 5.1% is the largest in over 25 years. The company has a 5-year compounded annual dividend growth rate (CADGR) of 4.03%, and a 10-year CADGR of 3.29%. Longer term, the dividend growth rates are even lower, with 20-year and 25-year CADGRs of 2.49% and 2.40%. WGL Holdings has split its stock twice 2-for-1 since beginning its record of dividend growth in 1977. The most recent split was in May 1995. Prior to that, the company split the stock in November 1984. For each share of WGL stock that you owned in the early 1980s, you would now have 4 shares of stock. Over the 5 years ending on December 31, 2014, WGL Holdings stock appreciated at an annualized rate of 14.84%, from a split adjusted $27.12 to $54.17. This outperformed the 13.0% annualized return of the S&P 500 and roughly matched the 14.9% annualized return of the S&P Mid Cap 400 index during this time. WGL Holdings’ Direct Purchase and Dividend Reinvestment Plans WGL Holdings, Inc. has both direct purchase and dividend reinvestment plans. The plans’ fees are not too onerous. You do not need to be an existing shareholder to participate. As a new investor, you’ll pay a one-time enrollment fee of $15. There are no fees associated with purchasing shares, either directly or through dividend reinvestment. For new investors, the minimum purchase amount is $250. Once you begin participating in the plan, the minimum purchase amount is $50. When you sell your shares in the plan, you’ll pay a fee of either $15 or $25 plus a transaction fee of 12 cents per share sold. You’ll also be charged an additional $15 if you request help from a customer service representative in placing a sales order. All the fees will be deducted from the sales proceeds. Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.