The company provides electricity to 4.4 million retail customers in Alabama, Florida, Georgia, Mississippi and the Carolinas.
Southern has a more diverse revenue stream than most utilities: it also owns wholesale power marketing, along with fiber optics and wireless communications businesses.
Southern's earnings rose 12% to $2.2 billion in 2011 from $1.97 billion in 2010, while earnings improved 8% to $2.57 per share in the same period. Earnings were higher because of a utility rate increase in Georgia and the signing of new long-term contracts that increased margins on natural gas sales.
The Southeast markets Southern serves are growing faster than other regions of the country. The company also benefits from automakers such as Kia and Mercedes-Benz, which are building new manufacturing plants in the region.
In the next three years, Southern plans to invest $14 billion in transmission systems and expansion of power-generating capacity. Management targets 5% to 7% earnings growth in each of the next five years. Analysts say the company can easily deliver 6% annual earnings gains.
Southern delivers much faster dividend growth than most utilities. Dividends have grown more than 40% in 10 years. The last dividend hike was a 4% increase last April to a $1.89 annual rate, with another increase likely to take place this year. Payout is modest at less than 30% of cash flow, which leaves plenty of cushion for more dividend growth.
Risks to consider:
Pepco may not be granted its request to hike rates this year. In addition, the company is raising funds through an equity offering that is dilutive to shareholders. Southern plans to build nuclear plants in Georgia, but is encountering roadblocks from environmental groups that want to block its construction.
Action to take --> Though the three utilities I mentioned here are great investments, my top pick overall is Southern Co. because it offers the best prospects for high dividend growth. Southern is also more diversified, has a foothold in faster-growing Southeastern markets and a stellar dividend record. Pepco and PP&L are good picks for investors who want safety, high income and improving growth.
Lisa Springer
Lisa Springer does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC does not hold positions in any securities mentioned in this article.
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Author: Lisa Springer