Micro Blog #12: Has The Southern Company (SO) Reached Bottom?

The Southern Company (ticker SO) is one of my favorite utility stocks. It is not only one of the largest utilities in the US, but also a great dividend stock with a 17 years of consecutive annual dividend growth history.

SO is currently yielding at slightly over 5% at a blended P/E of 15, which makes it fairly valued at the current price. A fair value is indicated by the orange line in the FastGraphs.



SO is currently my second largest utility holding at 3.67% of my portfolio's Market Value (MV).


I'm contemplating whether I should add more as the current price represents a long-term bottom support and a great yield.

The green dots in the chart below show all my buy points over the last six years. As you can see, current price represents a bottom in SO stock price and where I like to buy. We haven't had the SO stock trade at such an opportunistic price in the last 2+ years.


I'm adding SO back to my Buy list, and based on yield alone, it would be at a higher priority than FLO, KMB, and VZ.


I plan to add a few shares of SO by the end of this week as dividends hit my account and while market is still in a recovery mode from correction.

Comments

  1. Mr. ATM, I'm not sure SO has hit bottom or not, but I do think it is a reasonable buy at recent levels. Do the cost overruns and struggles with the construction of the new nuclear plant enter into your thought process? Tom

    ReplyDelete
    Replies
    1. Tom, I called it a bottom based on the last 7 or so years of price moments, as you can see in the chart. Once the stock moved above a P/E of 15 after 2009 recession, it has rebounded each time around this multiple.

      Now, of course, I can't be 100% certain and stock can go further down from here on any negative news or additional hawkish actions from the fed on interest rates. But based on the recent 10% correction and the long-term multiple, I feel comfortable calling this a bottom for now.

      Regarding the construction of the two new nuclear plan, yes how can I forget that? I'm the guy who also owned SCG, remember? I got out of SCG before the Westinghouse bankruptcy crap hit the fan.

      Though, SO is in a different position than SCG. SO has the financial strength and a very friendly regulatory environment to get through these construction projects, unlike SCG. They also have a smart management who made Toshiba (Westinghouse parent) pay SO a lump sum of $3.2B for Westinghouse failure.

      Of course, there are risks of cost overruns in such projects, but having a friendly regulatory body can help shoulder some of that cost (i.e. via rate increases).

      Like all stocks there are risks, and one must know what they are getting into and monitor their stocks/investments regularly.

      Delete
    2. Thanks Mr. ATM. Appreciate your thoughts. Tom

      Delete
  2. One thing I observed with SO is has strong Resistance at 40. I would try to get it around 40-41.

    ReplyDelete
    Replies
    1. When determining a bottom or a fair value, I look at long-term P/E multiples rather than a price alone, since price is just some multiple of earnings.

      If you are looking at $40 price resistance 6 or 7 years ago, it would give you a P/E multiple of around 15, that's where the resistance lies (the orange line on the chart) in the last 7 or so years. At least that's what I see.

      Therefore, applying the same multiple to 2017 eps, it gives me a fair value or bottom price of $44. Next year's earnings gives us a slightly higher price of $45.

      A $40-$41 would be a bargain or what I call a 'hero price' :)

      Delete
  3. You already know I like SO as it was just announced as my last recent buy. Looks like it hit bottom just below the $43 mark where I bought it. It has been pretty stable since then. It is hovering around 3% up from my cost currently. Although hard to say in this market if things will start to stabilize now or just get lower. Good luck picking up a few more shares. Enjoy that 5% yield.

    ReplyDelete
    Replies
    1. Yeah, I think I'm going to get some more before the ex-div, especially, if it stays in 43-44 range. It will be then in par with my D position and then I can focus on building my other three utilities PPL, ED, and DUK.

      Delete

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