Southern Co. (SO), the biggest U.S. utility owner by market value, had a difficult first quarter, as warmer weather (compared to an exceptionally cold 2010) led its customers to use less electricity for heating.
But this is a tried-and-true utility in terms of a rising share price and an increasing dividend. The stock has gained 66 percent over the past five years, and the dividend has climbed 22 percent during that period. So the shares are worth a look.
Southern produces and distributes electricity to more than 4.4 million customers in the Southeast. It owns electric utilities in Alabama, Georgia, Florida, and Mississippi and has more than 42,000 megawatts of generating capacity.
Southern’s profit slid 15 percent in the first quarter profit to $422.3 million from $494.5 million a year earlier. Sales dipped 3.5 percent to $4.01 billion from $4.16 billion.
The more mild winter weather explains much of the earnings decline. In Georgia, the state where Southern has the most customers, the average daily demand for heating in the first quarter dropped 20 percent from a year earlier, according to National Oceanic and Atmospheric Administration data compiled by Bloomberg News.
Despite that performance, “activity among our industrial customers has nearly reached pre-recession levels, and we expect that momentum to continue as the year progresses," Southern Co. CEO Thomas Fanning said in a statement accompanying the earnings report.
"While the overall pace of economic recovery remains measured, we are confident in the fundamental strength of our service territory and in our core business strategy.”
Analysts at Zacks Investment Research point out that while Southern Co. may face some short-term pain, it is well positioned for long-term gain.
“The challenging economic environment and a return to more normal spending levels may hamper Southern’s results during the next few quarters,” they write.
But, “with good rate base growth and constructive regulation, we believe Southern Company will be able to generate steady earnings and dividend growth in the coming years through its long-term power contracts.”
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