The Southern Company (NYSE:SO) operates in the United States with a power generating capacity of nearly 46,000 megawatts to 4.4 million customers. The company, with its subsidiaries, operates hydroelectric, natural gas, coal, and nuclear generation sources to generate electricity.
The company recently announced an increase in its annual dividend by $0.07 to $2.03 per share. This is the seventh consecutive year that Southern Company has raised its dividend. Shares of Southern have been on a rise since the beginning of the year.
Unique stock
What makes this stock unique is that it has paid dividends to its shareholders for the past 262 consecutive quarters since 1948.
Strong financials
The Southern Company (NYSE:SO) has shown strong financial performance over the past year. In Q1 2013, operating revenue increased to $3.9 billion. Net income decreased 78% from $368 million in Q1 2012 to $81 million in Q1 2013.
Southern Company’s EPS decreased from $2.67 in 2012 to $ 2.35 in 2013. The company expects its EPS to be around $2.92 in 2014. Talking about the subsidiaries, Georgia Power is the largest subsidiary for Southern Company in terms of revenue. Georgia power had operating revenue of $7.998 billion in 2012.
Electric industry future outlook
Opportunity for capacity addition
The year 2013 brings an opportunity for the electric utility companies for capacity addition. The low interest rate and low electricity prices present offer an opportunity for the electric utility companies to invest in capacity addition. This will strengthen their infrastructure for the future demand.
The companies should strategically invest in projects which will strengthen their core competencies. The high capital expenditure involved in capacity addition should be considered as investment for the future.
Recent investments
Recently, Southern Power a subsidiary of The Southern Company (NYSE:SO), acquired the Granville Solar Facility. Southern Power has made this acquisition jointly with Turner Renewable Energy. The Granville Solar Facility is located in North Carolina. The solar facility has a capacity of 2.5 megawatts. This being Southern’s first acquisition of a solar plant marks its entry into solar power production. This acquisition is in line with Southern’s strategy to focus on renewable energy resources for the production of power.
Southern company’s stock analysis
The stock of The Southern Company (NYSE:SO) has gained about 14% since touching the low level of $42 in November 2012. The stock is currently trading at the price level of $46.95. The upward movement of the company’s stock is majorly attributed to the strong financial performance in the fourth quarter of 2012. Currently, the stock has the yield of 4.33%.
Comparison with competitors
Competitors of Southern Company are CenterPoint Energy, Inc. (NYSE:CNP), Entergy Corporation, and NextEra Energy, Inc. (NYSE:NEE).
When compared with its competitors, it can be seen that Southern Company has the highest operating margin in the industry. Southern’s operating margin of 26.99% is better than the operating margin of 15.75% for CenterPoint Energy, Inc. (NYSE:CNP) and close to 22.87% for NextEra Energy, Inc. (NYSE:NEE). The gross margin of 0.43 for Southern is the best in the industry. Southern Company is the largest company in the industry in terms of market capital, revenue, and work force employed.
NextEra Energy is an electric utility company engaging in the generation, transmission, distribution, and sale of electric energy in the United States and Canada. The company is headquartered in Florida and has a power generation capacity of 43,000 megawatts. NextEra Energy, Inc. (NYSE:NEE), with its subsidiaries, operates hydroelectric, wind, solar, natural gas, oil, coal, and nuclear generation sources to generate electricity.
The stock is on a rally and currently trading at the level of $79. The net income of $1.9 billion for NextEra is less than the net income of $2.35 billion for The Southern Company (NYSE:SO). Also, the margins and revenue growth rate of NextEra are less than that of Southern Company.
CenterPoint Energy, Inc. (NYSE:CNP) engages in the electric transmission and distribution business in Houston. CenterPoint Energy has a market capital of $10 billion but it is much lesser than Southern Company’s market capital of $41 billion. The stock of CenterPoint has a yield of 3.5%, which is less than the yield of 4.33% for Southern Company. .
Conclusion
Southern Company’s stock has a yield of 4.33% and its dividend has increased by an average of 4% per year in the past seven years. Its revenue growth estimates and margins are good. The Southern Company (NYSE:SO) is a buy for the long-term. It is a good investment for people who are looking for steady and continuous returns and dividends.
The article This Electric Utility Stock Is a Buy originally appeared on Fool.com and is written by Shas Dey.
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