AT&T Inc. (T), Verizon Communications Inc. (VZ)- Avoiding A Sweeney Todd Haircut: Part Three

An around 4% dividend yield may not be super exciting for a utility, but The Southern Company (NYSE:SO) has a lot going for it. For example, it operates in growing markets and has good relationships with its regulators. Also, the company is building new, high-tech power plants, including nuclear and coal gasification plants. Both are large, costly projects, but have great appeal over the long term.

The Southern Company (NYSE:SO) has proven itself to be the type of utility that you own and forget about. Collecting a 4% yield along way isn’t too bad for a rock solid utility, either.

Cash is King

Federated Investors Inc (NYSE:FII) is an interesting story in the finance world. Although it has been working to increase its size in the equity and bond markets, money market accounts still represent its largest business. These are notoriously low margin products, but relatively stable ones.

Money market funds are very similar to utilities in that few investors ask about how much a money market fund costs. Customers simply assume that a money market fund is available for their cash when it isn’t invested in stocks.

If the equity markets tank, the company’s assets under management (AUM) won’t be as hard hit as more heavily stock and bond focused competitors. In fact, if investors sell assets and hold cash, the company may actually see an increase in AUM. That makes this a bit of a contrarian play because of the utility-like nature of money market funds.

Federated Investors Inc (NYSE:FII) is a well-run company with a unique niche that should hold up even in a market decline. The impact of low interest rates on the company’s margins is and will remain a negative until rates go up, but the 4% or so dividend yield looks to be pretty solid.

Going Big (ish)

There’s no question that AT&T Inc. (NYSE:T), Verizon, and The Southern Company (NYSE:SO) are industry giants, putting them in good positions even if Sweeney Todd comes to town. The trio’s annuity-like revenue streams should keep revenue flowing and the dividends growing, even if irregularly at Verizon Communications Inc. (NYSE:VZ). That makes sticking out a tough spell easier. Federated Investors Inc (NYSE:FII), meanwhile, is a big fish in a small market, but that market should be a good one if heads start to roll and people rush for the safety of cash.

The article Avoiding A Sweeney Todd Haircut: Part Three originally appeared on Fool.com is written by Reuben Brewer.

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