I notice some utilities have dipped as much as 20% from their 52-week highs. The dip maybe a rotation of funds out of the typically slower growth utilities sector for the purpose of profit-taking, or maybe investors are worried that interest rate hikes will cause the typical high-yielding utilities to dip further.
Because of the dip, I reviewed the 30 utilities in The Utilities Select Sector SPDR Fund (NYSEARCA:XLU) to see if there are treasures to be found. I filtered down to one utility that has had stable, growing earnings for more than a decade.
Southern Co, a Stable Utility with 5% Yield
Here, I present Southern Co (NYSE:SO), which has a S&P Credit Rating of A, sustainable debt levels, and is trading close to a price-to-earnings ratio (P/E) of 15 priced around $43 per share today.
I believe it’s fairly priced today, hitting the orange earnings line. The blue normal P/E line indicates that it has historically traded at a P/E of 16.
Since 2005, the company has increased dividends by 3-4% per year. I’d say that’s keeping pace with inflation. With a juicy yield of 5%, and growing say at 3% going forward, it should keep pace with general market returns of 7%.