This Top Utility Stock Could Supercharge Your Passive Income in 2024

Ajit Kushwaha

Utility stocks like Southern Company are often overlooked by investors seeking high growth opportunities. However, for those focused on generating substantial passive income, utility stocks can provide very attractive and stable dividend yields year after year.

As we head into 2024, Southern Company stands out as one of the best utility dividend stocks to own in your portfolio. Here’s a closer look at why this top utility company could supercharge your passive income next year and beyond.

Southern Company’s Track Record of Strong Dividend Growth

Southern Company has an outstanding track record when it comes to dividends. The Atlanta-based electric and gas utility serving 9 million customers across the Southeast U.S. has paid uninterrupted quarterly dividends for over 70 years.

Even more impressive, Southern has increased its dividend annually for 22 consecutive years. This streak of steady dividend growth puts Southern in the elite group of Dividend Aristocrats – S&P 500 companies that have raised their payouts for at least 25 straight years.

Southern Company increased its dividend by 8 cents per share on an annualized basis, marking the 22nd consecutive year that the company has raised its dividend. The new annualized rate is $2.80 per share. 

Additionally, Southern Company announced a regular quarterly dividend of 70 cents per share, payable on September 6, 2023, to shareholders of record as of August 21, 2023. This marks the 75th consecutive year that Southern Company has paid a dividend on its common stock.

Looking ahead, Southern states that one of its primary goals is to provide “reliable, affordable and clean energy through innovation and a continued focus on customers, shareholders and communities.” This commitment to shareholders indicates the dividend increases should continue in 2024 and beyond.

Resilient Earnings Support Secure Dividends

Southern Company has built a strong utility franchise that generates very consistent earnings and cash flow. This provides the capacity to keep paying and growing its dividend.

Through the first nine months of 2023, Southern’s net income totaled $3.1 billion, down around 14% versus the same period in 2022. However, the decline was largely due to warmer-than-normal weather which softened demand.

Excluding weather impacts, Southern’s financial performance remained solid. In the third quarter ending September 2023, adjusted earnings were $1.4 billion, down just 3% year-over-year.

With operations across electric utilities in Alabama, Georgia, Florida, and Mississippi, Southern benefits from diversification across its regional territories. This helps smooth out short-term demand fluctuations caused by weather or other factors in any single market.

Even in down years, Southern’s profit margin is impressive for a utility business. Over the last decade, the company’s net profit margin has averaged 12% of revenue – well above the industry median. This demonstrates the earnings power of Southern’s premier utility franchise.

An Attractive Nearly 4% Dividend Yield

Southern Company’s stock offers a very attractive nearly 4% (currently 3.96% as of 2nd January 2024) dividend yield at the current share price near $70.74. This is considerably higher than the S&P 500 average dividend yield, which sits around 1.7%.

A $10,000 investment in Southern Company shares would generate around $400 per year in passive dividend income. Compared to keeping that money in a savings account or bond fund yielding 1-2%, Southern’s 4% dividend can dramatically boost income.

Southern’s yield is also noticeably higher than other major utility competitors. For example, top rivals NextEra Energy and Duke Energy have payout yields of 3.02% and 4.19%, respectively.

Between the well-above-average starting yield and consistent yearly dividend increases, Southern is positioned to deliver strong income growth for shareholders going forward.

All-Around Utility Giant Worth Owning for the Dividends

With operations across three primary businesses – electric utilities, natural gas distribution, and power generation – Southern Company has established itself as one of the country’s largest and most well-run utility conglomerates.

The company serves 9 million electric and gas customers. Southern’s electric utilities provide power to more than 60% of Alabama and Georgia residents.

Southern Company owns significant generation assets including natural gas, coal, nuclear, hydroelectric, solar, and biomass facilities with over 46,000 megawatts of capacity. It operates one of the largest carbon-free nuclear fleets with a total capacity exceeding 8,800 megawatts across six plants.

While Southern focuses mainly on regulated electric and gas distribution which offers stability, its generation business helps provide economies of scale and diversification benefits. Overall, Southern Company possesses a premier utility franchise with longevity and a prime position across its core Southeast U.S. markets.

With the stock trading at reasonable valuation multiples and offering an attractive 4% dividend yield, investors seeking passive income and utility sector exposure should take a close look at Southern Company this year. The company’s impressive track record of dividend growth underscores why it could be an excellent stock to own for dividend investors in 2024 and over the long run.

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Ajit Kushwaha is a stock market investor and business owner of a chips manufacturing company in Hazaribagh, Jharkhand, India. He holds a Bsc. from Vinobha Bhave University and leverages over 5 years of stock market experience in managing investments and his snack food business.
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