Retirement Dividend Stock: Southern Co (NYSE:SO)
Southern Co (NYSE:SO) is an electricity utility that supplies power to over 4.5 million customers in:
– Georgia
– Alabama
– Mississippi
– Florida
Southern Company is extremely stable. The company has paid dividends every quarter… Since 1948.
The company has not reduced its dividend payments since at least 1982 (and probably much longer). Southern Company’s recent dividend growth is shown in the image below.
Source: Southern Company Investor Relations
Southern Company pays large dividends. The company’s dividend yield currently sits at 4.5%. Retired investors should take note of the company’s combination of a high yield and stability.
Like the other utilities discussed in this article, Southern Company’s competitive advantage comes from its natural geographic advantage and its presence in a highly regulated industry.
Southern Company is similar to Consolidated Edison in that it is not a fast growing business. The company has managed to compound earnings-per-share at 3.0% a year over the last decade and dividends-per-share at 3.9% a year over the same period.
The company’s management is expecting earnings-per-share growth of 4% to 5% a year. I believe this is a touch optimistic given the company’s historical growth. Earnings-per-share growth of 3% to 4% a year is more likely.
This growth combined with the company’s 4.5% dividend yield gives investors expected total returns of 7.5% to 8.5% a year – not bad for low risk, highly regulated utility business.
Southern Co (NYSE:SO) is currently trading for a price-to-earnings ratio of 16.8. Like the other utilities in this article, Southern Company is likely trading around fair value given its stability, high yield, and growth prospects.
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Retirement Dividend Stock: Emerson Electric Co. (NYSE:EMR)
Emerson Electric Co. (NYSE:EMR) has an enviable dividend record. The company is one of only 17 Dividend Kings – dividend stocks with 50+ consecutive years of rising dividends.
Emerson Electric is a large diversified manufacturer with a $33 billion market cap and a 3.7% dividend yield.
The company’s stock price peaked at around $65 near the end of 2014. Today, Emerson Electric stock can be purchased for ~$51. The last 1.5 years have not been good for the manufacturing industry. Emerson Electric is no exception:
Source: Emerson 2016 Investor Conference Presentation
Despite the downturn, Emerson Electric’s payout ratio is still safe at just 50% of earnings.
Temporary negative growth has caused Emerson stock to become a bargain. The company’s shares are currently trading for a price-to-earnings ratio of 13.8.
Emerson is not a slow growth company. It has compounded both earnings-per-share and dividends-per-share at over 8% a year over the last decade. The company is suffering temporarily (as are many other manufacturers) from the decline in oil and gas prices, the growth slowdown in emerging markets, and the strong United States dollar.
Emerson Electric’s competitive advantage comes from its large size and global reach. The company has around 230 manufacturing facilities spread around the world.
Emerson Electric is splitting up its business to focus on its best individual business units. The company will divest around 1/3 of its business to focus on its more lucrative automation and commercial & residential solutions businesses.
These divestitures will very likely create value for shareholders over the long run as it better focuses the company on its core competencies.
Emerson Electric Co. (NYSE:EMR) combines a high yield, with a very long streak of rising dividends, a low price-to-earnings ratio, and a value unlocking catalyst in upcoming divestitures.
