Assessing the Sustainability and Growth of Southern Co's Dividends
Southern Co (SO, Financial) recently announced a dividend of $0.7 per share, payable on 2024-03-06, with the ex-dividend date set for 2024-02-16. As investors look forward to this upcoming payment, the spotlight also shines on the company's dividend history, yield, and growth rates. Using the data from GuruFocus, let's look into Southern Co's dividend performance and assess its sustainability.
What Does Southern Co Do?
Southern Co is one of the largest utilities in the U.S. The company serves 9 million customers with vertically integrated electric utilities in three states and natural gas distribution utilities in four states. It owns 50 gigawatts of rate-regulated generating capacity, primarily for serving customers in Georgia, Alabama, and Mississippi. Subsidiary Southern Power owns 13 gigawatts of natural gas generation and renewable energy across the U.S. and sells the electricity primarily under long-term contracts.
A Glimpse at Southern Co's Dividend History
Southern Co has maintained a consistent dividend payment record since 1986. Dividends are currently distributed on a quarterly basis. Southern Co has increased its dividend each year since 1986. The stock is thus listed as a dividend aristocrat, an honor that is given to companies that have increased their dividend each year for at least the past 38 years. Below is a chart showing annual Dividends Per Share for tracking historical trends.
Breaking Down Southern Co's Dividend Yield and Growth
As of today, Southern Co currently has a 12-month trailing dividend yield of 4.12% and a 12-month forward dividend yield of 4.15%. This suggests an expectation of increased dividend payments over the next 12 months.
Over the past three years, Southern Co's annual dividend growth rate was 3.20%. Extended to a five-year horizon, this rate increased to 3.30% per year. And over the past decade, Southern Co's annual dividends per share growth rate stands at 3.40%.
Based on Southern Co's dividend yield and five-year growth rate, the 5-year yield on cost of Southern Co stock as of today is approximately 4.85%.
The Sustainability Question: Payout Ratio and Profitability
To assess the sustainability of the dividend, one needs to evaluate the company's payout ratio. The dividend payout ratio provides insights into the portion of earnings the company distributes as dividends. A lower ratio suggests that the company retains a significant part of its earnings, thereby ensuring the availability of funds for future growth and unexpected downturns. As of 2023-09-30, Southern Co's dividend payout ratio is 1.04, which may suggest that the company's dividend may not be sustainable.
Southern Co's profitability rank, offers an understanding of the company's earnings prowess relative to its peers. GuruFocus ranks Southern Co's profitability 7 out of 10 as of 2023-09-30, suggesting good profitability prospects. The company has reported positive net income for each of year over the past decade, further solidifying its high profitability.
Growth Metrics: The Future Outlook
To ensure the sustainability of dividends, a company must have robust growth metrics. Southern Co's growth rank of 7 out of 10 suggests that the company's growth trajectory is good relative to its competitors.
Revenue is the lifeblood of any company, and Southern Co's revenue per share, combined with the 3-year revenue growth rate, indicates a strong revenue model. Southern Co's revenue has increased by approximately 10.00% per year on average, a rate that outperforms approximately 58.59% of global competitors.
The company's 3-year EPS growth rate showcases its capability to grow its earnings, a critical component for sustaining dividends in the long run. During the past three years, Southern Co's earnings increased by approximately 5.50% per year on average, a rate that outperforms approximately 50.46% of global competitors.
Lastly, the company's 5-year EBITDA growth rate of 25.20%, which outperforms approximately 85.14% of global competitors, indicates a strong potential for continued profitability and dividend sustainability.
Next Steps
For value investors, Southern Co presents a compelling case with its consistent dividend history and promising growth metrics. While the high payout ratio might raise some concerns, the company's strong profitability and growth potential suggest that Southern Co could maintain its commitment to rewarding shareholders. Investors should continue to monitor the sustainability factors such as payout ratios, profitability ranks, and growth rates. For those interested in exploring further, GuruFocus Premium users can screen for high-dividend yield stocks using the High Dividend Yield Screener.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
