I opened a new position with the purchase of Southern Company (SO)
37 shares @ $43.33 on 9/28/2018.
This increases my forward 12-month dividend income by $88.80 to a total of $6,611.96
I also updated my portfolio page to reflect the change.
My Thoughts
I am very happy with this purchase. I have been meaning to buy a utility company for a long time. The utility companies, for the most part, are safe and high yielding dividend stocks. I actually plan on buying more utility stocks in the future. I would like to have a portfolio weight of utility stock no more than 5%. Currently, with this purchase, The Southern Company is the only utility stock I own with a weighted average of 1%.
Some other companies I plan on buying would be PPL Corporation (PPL) and Dominion Energy, Inc. (D).
The Southern Company has been increasing its dividend for the last 18 years. However, The last 10 years dividend growth rate and the 5-year dividend growth have been 3.7% and 3.4% respectively. I am ok with these numbers. I find value in the safe high dividend yield that this company and other utility companies provide. Again, this is why I only would like to have no more than 5% weighted average of utility stocks in my portfolio.
Currently, this company has a dividend yield of 5.35% and a dividend payout ratio of 76% based on last years adjusted earnings of $3.02 a share. This year’s adjusted earnings are estimated to be $3.02 and in 2019 to be $3.02. So earnings are expected to be flat. Which is not a good thing, but since the dividend is somewhat well covered, there is no concern on my part.
Another metric to look for in the 5-year dividend yield. This company sports a 5-year dividend yield of 4.67%. As I just mentioned, it is currently yielding 5.35%. This leads me to believe that the stock is undervalued.
The company normal 10 years PE is 16.5 and the stock currently has a PE of 14.9.
SO is undervalued, and I recommend it as a BUY at this time. I have a fair value price at $49.83. This means that SO is 10.97% undervalued Based on today’s price of $44.97(11/2/2018).
Source: Fastgraphs.com
What do you think of the company? Plan on owning it? or why not?
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Very nice pickup Felix. Great company, great metrics for a utility, and a 5%+ yield is awesome. Enjoy those dividends 🙂
Bert
Yea its a type of company that should be in everybody’s portfolios. thanks for stopping by Bert!!
How about ED ?
Hi Paul, ED is a great company but I would like it at a PE of 15 or lower. I find it overvalued right now. thanks for the question.