The Southern Company (SO): Costs Could Kill This Dividend Stock

On the generation front, gas/oil took a larger piece of Southern’s energy portfolio, up 2 percentage points to 47%. Coal remained steady at 32%, while nuclear dropped 3 percentage points to 16% and hydro headed up 1 point to 5%.

Will Southern soar?
Southern shares fell 1.3% on its earnings announcement, signaling the market’s disappointment with the utility’s new costs. The Kemper plant will ultimately slice another $540 million off the utility’s books, a price that doesn’t match up with Southern’s newly increased dividend. With natural gas prices headed higher, I’d rather see a steady diversification strategy than a bigger payout.

For Southern to deliver, the utility needs to:

1. Control costs (Kemper keeps me unconvinced).

2. Stay smart on its dividend distributions (the new increase is no good).

3. Ramp up its renewables diversification (recent news has me optimistic here).

Until I can be sure that management is seriously strategizing to pull through on these three points, I’ll leave this dividend stock on the sideline of my portfolio.

The article Southern Earnings: Costs Could Kill This Dividend Stock originally appeared on Fool.com is written by Justin Loiseau.

Fool contributor Justin Loiseau has no position in any stocks mentioned, but he does use electricity. You can follow him on Twitter @TMFJLo and on Motley Fool CAPS @TMFJLo. The Motley Fool recommends Southern Company.

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