Polliesdividend

The Southern Company (SO) Stock Analysis Pollie Style

In my half year review of 2017 (You can read it here – Letter to my readers – 2017: Half year review). I looked into way more companies, but didn’t post this on my website. So I imposed myself to publish more analysis Pollie-style.

Today is my second analysis for this new goal.
For my analysis I use the famous CCC-list of David Fish and my Pollie-code.

Okay but which company to look into? First of all, I have 2 important lists of stocks I really like. The first list is my watch list. This list contains about 20 stocks. The second list is my list with Dividend Zombies (For more information on the Dividend Zombies, just read my Impressive stocks post). But before I pick a stock, I also have to look at my total portfolio.

A good diversified portfolio is exposed to a wide variety of stock sectors. For the classification of the stocks in my Vrijheid Fonds, I’m using the sectors as mentioned in de David Fish “US Dividend Champions” spreadsheet. In my Vrijheid Fonds I’m not invested in the Utilities sector. So I’m looking to increase my exposure in this sector. With some high yields in this sector it can be interesting (but first I have to do my homework 😉 )

So this analysis is on The Southern Company (SO).

 

www.polliesdividend.com

 

Company

From google finance: The Southern Company (Southern Company) is a holding company. The Company owns all of the stock of the traditional electric operating companies and the parent entities of Southern Power Company (Southern Power) and Southern Company Gas, and owns other direct and indirect subsidiaries. The Company’s segments include Gas distribution operations, Gas marketing services, Wholesale gas services, Gas midstream operations and all other. The Gas distribution operations segment includes natural gas local distribution utilities that construct, manage, and maintain intrastate natural gas pipelines and gas distribution facilities in seven states. The Gas marketing services segment provides natural gas commodity and related services to customers markets that provide for customer choice. The Wholesale gas services segment engages in natural gas storage and gas pipeline arbitrage. The Gas midstream operations consist primarily of gas pipeline investments, with storage and fuels.

Can I explain this to a 10-year old? What Does This Company Do?
This company gives you gas and electricity to use in and around your house. For instance to prepare a meal on your stove and to power your refrigerator to give you a cool Coke.

 

Pollie-code Analysis

Dividend Aristocrat: Southern Company has been paying dividends every quarter since 1948. And SO has raised its dividend for 17 consecutive years. It is therefore a Dividend Contender on the CCC-list from David Fish! (No.183). They are a three star stock on Morningstar.com. The company hasn’t reduced its dividend in the last 30 years. However because it hasn’t raised its dividend for more than 25 years, it is a Fail!

Dividend Yield > 2.5%: The dividend Yield of SO is 4.85%. This is above the industry average of 3.1%, and slightly above its 5 years average (4.6%). The Yield is above the requirements of the Pollie-Code, and therefore it is a Pass.

Dividend payout <70%: The dividend payout is roughly 86%. This is above the maximum ratio, and therefore a bit more risky. Therefore SO failed for this point.

DGR 1 year > 0%: The dividend growth rate for 1, 3, 5 and 10 years are 3.3, 3.4, 3.5 and 3.8. With a 3-years average around 3.4% this looks very good! And it is above the requirements of the Pollie-code, so it is a pass.

P/E-ratio < 15: This is an easy metric that is well documented. It can be used as a quick metric to identify stocks that may potentially be undervalued. I use this to identify stocks that may be discounted compared to the overall stock market. SO has a current P/E ratio of 17.8. The industry average is 17.3. The P/E ratio is slightly above the industry average. But it is lower that its 5-years average (19.3). The P/E-ratio is above the requirement of the Pollie-Code. So this is a Fail.

EPS > 0: The EPS is 2.69. Therefore SO passed the sixth Pollie-Code

ROE > 10%: Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. The current ROE is 10.9%. This is another Pass.

Market Cap. > 100M: No problem at this point. The Market cap. Is more than $ 48.427 Mil. You guested it already: Another pass.

Chowder Rule > 12: Named after “Seeking Alpha” member Chowder. This is a method of identifying candidates for purchase based on a combination of yield and (5-year) dividend growth rate. When the sum of these elements is above 12%, the company presents an attractive entry point (8% for utilities). When the figure is above 8%, an existing holding is still considered worthy of being retained. The current Chowder rule is 8.3. Because SO is a utility it is above the requirement of the Pollie-Code. So it is another Pass.

Stock price 52wk high-25%: The 52 wk. high and low are: 53.80 and 46.20. This means that SO will be in my buying zone when the stock price is below 51.90 ((53.80-46.20)*0,75 + 46.20). At this moment SO is trading for $47.20. Therefore it is a pass on the Pollie-Code.

Beta: I think it’s important to have low Beta stocks in my portfolio. This helps to have a stable income all the time, even when the market has a rapid decline. The Beta for SO is 0.13.

Debt/Equity ratio: The Debt/Equity ratio of SO is 1.71. This is very high. But SO has been changing in a greener company, for which they need a lot of money.

 

Conclusion

When I look at my analysis, The Southern Company passed 7 out of 10 metrics of the Pollie-code. Okay The Southern Company isn’t a Dividend Aristocrat yet, but is on its way And I don’t think the valuation is too high now, at about 17 times earnings for the stock, as the company continues to make some strong moves toward cleaner energy sources.

Normally a utility isn’t going to hand out big dividend raises every year. I think Southern Company is a kind of stock that pays a nice dividend and raises its dividend above the inflation rate. And with a very low Beta it nicely balances the portfolio.

It is almost unlikely that Southern Company will generate double-digit returns. Still, total returns of 7.8% to 8.8% a year in combination with low risk and low volatility make Southern Company an interesting choice.

All this information together I certainly will leave SO on my watch list for my Vrijheid Fonds and probably will take action in the near future. 😎

What are you – the readers, thoughts on The Southern Company? Is it a buy, do you own it?

Please comment on my analysis and thanks for stopping by!

Pollie.

Disclaimer: I’m not a registered investment adviser, investment professional, brokerage firm or investment company. Readers are advised that information on the website is issued solely for information purposes and not to be construed as an offer or recommendation to buy, hold, or sell any securities. All information, opinions, and analyses included are based on sources believed to be reliable, but no representation or warranty is made concerning accuracy, correctness, timeliness, or appropriateness. Please consult with an investment professional before investing any of your money.

Please follow and like us:
0

15 thoughts on “The Southern Company (SO) Stock Analysis Pollie Style

  1. Leo

    Good analysis!
    Everything has been well-founded.
    Can you tell me where you have the The Debt / Equity ratio of 1.71?
    I see only 1.95 in the David Fist list.

      1. Leo

        I applied the pollie code to the david fish list of June with more than 700 shares. After filtering, your remaining 15 stocks remain non-fluctuating, low pay-out ratios, and in any event more than 2.1% dividend, and in any case more than 5 years.
        Best a nice and useful list.

  2. Captain Dividend

    I like SO, I just purchased more. It’s been beaten up a bit after the Toshiba/Westinghouse bankruptcy ordeal. I’m a sucker for utilities though. There’s just something I like the safety utilities offer since there income is steady and regulated.

    1. Pollie Post author

      I understand why you’re a sucker for utilities. I also like their safety and stability!
      Which other utilities do you own?

      Cheers,

      Pollie

  3. DividendSolutions

    Hey Pollie,

    i own some shares of Southern Co, i purchased them about 2 years ago and i’m happy with them. I think about adding to my position, they offer a nice, reliable yield. Right now they have some issues with two bigger projects (clean coal and a nuclear plant). I’d like to see how this plays out before adding, although the recent price drop presents a good opportunity in my opinion.

    Regards,
    DividendSolutions

  4. Stalflare

    Ciao Pollie,
    I am an owner, currently in at 49 and trying to boost returns via Covered Calls. The company is a solid utility, maybe a little overvalued (I would have loved entering around 42-43 dollars) but stable income and good dividend. It’s a boring business so I am not looking at huge capital appreciation and dividend growth. As to the debt that is quite worrisome to me, but they are trying to turn away from coal and had some issues building a big nuclear project… Having said that this is the reason why they are not a “core” holding in my portfolio (I will sell it for a good capital gain).
    ciao caio
    Stal

  5. Dividend Portfolio

    I’m new to this blog. I like the layout of your analysis and it’s very timely for me. I’m looking to add 5 more stocks to my portfolio in the near future. I’ve narrowed it down to 4, but having trouble deciding on the 5th. I noticed SO before, but weren’t being considered by me for some reason. So, after reading this post, I’m going to have to give them serious consideration. My current 5th stock that I’m looking at is GWW. Different industry of course, but also still attractive.

    1. Pollie Post author

      Welcome on my website. Always happy to welcome new readers!
      GWW is also a great company.
      I will take a look at your website this week.

      Cheers,

      Pollie

  6. BescheidenBeurs

    Pollie, just out of curiosity, what stocks are currently on your watch list (if you are willing to share)? And do those stocks pass your test for 100% or just for the most part?

    1. Pollie Post author

      Hello BB,

      The following stocks are on my watchlist. At this moment I haven’t done an analysis for all these stocks.
      US- Stocks:
      JNJ, MMM, EMR, ED,AWR, DIS, APPL, PG, GAINO, T, ABT, ABBV

      and European stocks:
      MUV2, Safoni, nestle, Roche, Novartis, UN, AD

      Cheers,

      Pollie

  7. Dividend Daze

    Great analysis. Been looking at SO for a while and to increase my utilities sector. The price seems like a decent value since it is trading near it’s 52 week low. Just need more capital and I may start a position. We will see.

Leave a Reply

Your email address will not be published. Required fields are marked *