Recent buy – Southern Company (SO)

With another quarter passed and 600 EUR accumulated in our saving account it was time for another purchase. I was thinking really seriously not to make any purchase and just accumulate cash to get ready for correction in stock market as share price keeps on growing and hitting new heights, but that is not how DGI works 🙂

SOFew days ago we bought 15 shares of Southern Company paying 44,88 USD / share or paying 683 USD (incl. fee). With current dividends of 0,6 USD/quarter YOC stands at very high 3,7% after tax (-30%) bringing additional +36 USD or +22,1 EUR annual dividend income and increasing our Passive dividend income to 430 EUR. or 36 EUR/mo. This investment increase number companies that we have investment in US to 11. No each quarter we will be paid by 11 companies no matter what 🙂 How about that.

I was looking at LEG, GPC or SON but it turned out that my Broker/Bank do not provide with such option… Its becoming really annoying 😦

SO took my eye with one of biggest dividends yield in Utility sector. With low growth it will take decades for companies like AEP that we own to cash up. With forward P/E just 14,6 share looks a bit undervalues, which is understandable as company takes great risk and losses from their Nuclear power plant construction in Georgia, but I think that the project will be completed and company will get out even stronger. Payout ratio taking into account future earnings stands at 79%, bit high, but still reasonable and there is still some room for little growth which is what they were doing for the past few years with 5Y average dividend growth of just 3%. With such yield i’m ok with such growth taking into account some potential for more growth with Nuclear plant construction issues solved. What I don’t like is their leverage level with ~50 bn$ financial debts 2 bn$ cash and 8,1 bn$ EBITDA NetDebt/EBITDA stands at bit high level of 5,9x but for Utility company it is more or less acceptable. Taking into account few bn. of losses due to Nuclear plant construction their normalized leverage is even lower. Equity stands at 21% also low but still acceptable. All in all this SO looks reasonably valuated at this crazy market and i”m willing to take the risk that company brings.

On top one of my Baltic investments ESO announced 0,014 EUR/share H2 semi-annual dividends, which were much lower then previous 0,05 EUR which decreased our dividend income by ~21 EUR so our Total dividend income remains flat with mentioned new purchase. AGAIN reason why i’m investing in US companies despite lower yields and less favorable tax situation.

Another landmark was crossed. With this new purchase and ESO dividend decrease income from US companies dividends amounts to 218 EUR/year, meaning that more then 1/2 of our dividend income will not come from USA. That makes our dividend income more predictable and stable. Although there is some risk in USD/EUR fluctuation, but I think that USA will be there for the nest 50-100 years as it did for the last +300 years so USD should do fine 😉

What do you think of SO? Do you think I made a right decision?

8 thoughts on “Recent buy – Southern Company (SO)

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  1. Good luck with your purchase SO. I’m not a fan of timing the market, so who knows when the market correction will happen. In any case, I’ve been looking at SO for a while and will likely eventually add it to my portfolio as well.

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    1. Hi DP, yes its imposible to time the market especialy with these rare micro purchases like me 🙂 On the other hand that what are ratios are for. I have mentiones few in one of my posts about a year ago. I think its time to recheck the recession meter for USA 😉

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  2. Hi P2035,
    As you saw, I am also considering some company from Utilities sector to my portfolio. I will need to add SO to the list of possible additions. I don’t like their debt levels, though, but I guess it’s fine for a company with stable income.
    Congrats on getting your dividend income more stable!
    BI

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    1. Yee debt level for Utilities is a thing 😦 Take in kind that there are lots of one off loss re their nuclear power plant construction so their regular earning should be better then on the paper. Im not 100% happy with what im buying, but I just have to have that nice big dividend yield 🙂

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  3. SO is great, minus Vogtle – the nuclear plant they can’t seem to build. The overruns have been crazy, and as an SO customer, I’m not excited to have to cover those overruns with price increases. I own SO, but won’t be adding until we get a better idea how this debacle will end.

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    1. Well with issues you can get a better purchase price. You have to take a risk. if you play safe you end buying companies with 1% div yield and P/E >20 😉

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  4. Hey p2035, SO looks interesting, good yield and reasonable price. Debt is always a risk but hopefully as a solid utility company it can service the debt easy enough. I might add this to my list of potential candidates for the Global Fund 🙂

    Cheers, Gary

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    1. Hey there Gary. Thanks for droping by 🙂 Well I bought SO mostly due to their high yield, balance is not perfect, but can live with it. Lets see how they will manage that nuclear power plant construction.

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