The Southern Company (NYSE: SO) owns a collection of regulated electric and natural gas utilities – one of the largest in the U.S. – with a modest investment in fee-based businesses like contracted renewable power assets. It has increased its dividend or held it steady each year since 1948, and that dividend recently yielded a generous 4.9%. Clearly, management delivers for income investors.
Southern is building the only new nuclear power plants in the United States. That effort, known as the Vogtle project, hasn’t been going well. There’s some concern that COVID-19 may cause further delays and cost overruns, and the project is one of the reasons why the stock has been depressed. In the end, however, Vogtle accounts for less than 10% of Southern’s capital spending plans over the next five years. If everything goes as expected, it will complete the project in late 2022.
Southern used to generate the lion’s share of its electricity from coal, but that was down to 22% at the end of 2019, and the company is aiming for a “low- to no-carbon” goal by 2050. Its recent mix has natural gas fueling 50% of its energy production and renewables powering 12%.
The company’s pension plan is also fully funded, which reflects responsible management. If you’re looking for solid and growing income, take a closer peek at Southern Company.
Ask the Fool
Q: I read in Business Insider that “Gold could explode up to 80% to $3,500 in the next two years” – is that true? Should I be investing in gold? – W.Y., Sacramento, California
A: Not necessarily. The headline you read reflects the opinion of one financial professional, and while plenty of financial pros recommend gold, plenty of others don’t. Warren Buffett, for example, isn’t a fan, explaining that while it can do well in periods of economic uncertainty and is favored by those afraid of other investments, it has two main drawbacks: It’s not that intrinsically useful, and it doesn’t produce value, as would a company, a farm or real estate. He would rather remain invested in businesses that are generating earnings over time – even gold mining companies.
Gold may well hit $3,500 per ounce by 2022, but then again, it might not. It has a history of being volatile. Even if it does soar, it may pull back sharply, particularly when the economy strengthens and stocks start looking especially attractive. For example, gold topped $1,900 back in 2011, but then fell to nearly $1,050 in late 2015. If you want to add gold to your portfolio, don’t go all in.
Q: What’s a stock’s “float”? – A.D., Des Moines, Iowa
A: A company’s float is the number of its shares that are available for the public to trade. (It’s not the total number of shares that exist – “shares outstanding” – as some may be held by institutions or by insiders, with their trading currently restricted.)
Companies with small floats can be extra volatile, since demand from would-be buyers may be far greater than the available supply of shares, sending the stock up sharply – or vice versa.
My smartest investment
I’m only 20, but my smartest investment move has been getting into dividend stocks – and I’m reinvesting those dividends. It’s fun keeping up with the companies and their latest developments. The most exciting part is the compounding effect from dividend payments. I’m able to get my portfolio to yield 3%, which isn’t crazy, but certainly is healthy! – J., online
The Fool responds: Bravo! Dividends are often underappreciated by investors, with many thinking of them as just for retirees who seek income. Investors of all ages should welcome dividend income, though – if only so we can reinvest it in additional shares of stock to turbocharge our investment returns.
A Heartland Advisors report studying stock market performance over many years found dividend payers outperforming nondividend payers over long periods, and dividend payers offering some protection in market downturns. Simply being a dividend payer is a promising sign for a company, as it means management is confident enough about operational reliability to commit to regular cash payouts.
If your portfolio is worth $10,000 now, and its overall dividend yield is 3%, you’ll collect $300 per year. When you’re older, if your portfolio is worth $500,000 with a 3% yield, you’ll be receiving $15,000 per year – more than $1,000 per month! Best of all, healthy and growing companies tend to increase their payouts over time, which will help you keep up with inflation.
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