FI Fighter
≡ Menu

Portfolio Update: New Addition (SO; December 26, 2012)

Print Friendly, PDF & Email
southern-company

OK, I’ll admit, it was a little bit difficult for me to watch young kids opening up Christmas presents yesterday and not also think about participating in the fun. The kid in me also wanted to join in and unwrap something shiny! Unfortunately, I’m a little too old, and practical these days to be spending my hard earned capital on more toys (I already have enough).

Shiny New Toy!

With that said, my Christmas present to myself arrived a day later. Today, I initiated a position with The Southern Company (SO), purchasing 28 shares for $42.82/share.

Prior to making this purchase, my portfolio only contained one utility holding, Exelon Corporation (EXC). As readers may know, I nearly exited out of EXC last month, as there have been rumors swirling about a potential dividend cut in the works. With natural gas prices having rebounded a bit since early 2012, the future outlook for EXC may slowly be improving. I’m still monitoring this situation closely, but if I do sell, I will try and do so before any dividend cut is announced.

This time around, I decided to go with the best-of-the-best. The Southern Company serves over 4 million customers, delivering 43,555 megawatts of generating capacity. Electricity comes from the following sources: 52% coal, 30% oil and gas, 16% nuclear, and 2% hydro.

The Southern Company has been paying dividends for 260 consecutive quarters, dating back to 1948. There was a brief period when the dividend was not raised, but it has never been cut, or stopped. This year marks the 11th straight year of dividend increases. The current dividend yield is 4.58%, and the P/E is 16.89. Historically, a P/E around 18 and below represents fair value for SO. I’m not buying in at a huge discount, but I feel very comfortable moving forward with this holding.

Using the current payout of $0.49, this addition will add $54.88/year in dividend income.

Here are the technical data, assuming an initial investment date of January 2, 2002:

SO Dividend SO EPS SO Overview

Summary

Although the Fiscal Cliff crisis has yet to be averted, and Congress is still in negotiations, I wanted to make a small purchase now, just in case things do get resolved soon. As I mentioned in my latest watchlist, I’m not going to let short-term news like the Fiscal Cliff change my investment strategy and philosophy. I still feel that the market as a whole is pricey, but there is still value to be found.

Had I not purchased SO today, I would have added some shares of Vodafone (VOD), which retreated below $25. VOD has been doing poorly, thanks in large part to dismal performance in Europe. Again, this may just be short-term headwinds, as I do feel that VOD will be OK in the long-term. However, the problems in Europe probably won’t be going away anytime soon, either, so there should be more opportunities to load up on VOD at a later date. VOD will remain on my watchlist for the foreseeable future.

I’m still keeping the majority of my funds in cash, though, just in case a major correction does occur. I probably won’t make any more purchases for the remainder of this year, unless there is a sell-off event. So, unless that happens, this will put the final wraps on my first year as a dividend investor! My first purchase was Wal-Mart (WMT) back in January, which now seems like a long, long time ago.

Happy hunting everyone! 🙂

Related Posts :

{ 13 comments… add one }
  • ExecutionerNo Gravatar December 26, 2012, 5:14 pm

    Not a bad diversification strategy across the utility sector. With SO, you get the old guard, fossil-fuel, heavy-coal utility. With EXC, you get the newer-technology, nuclear/renewable utility. It’s plausible that the two could help balance each other out over time.

    • FI FighterNo Gravatar December 29, 2012, 2:37 pm

      Executioner,

      That’s true, and you also get some geographical diversification between SO and EXC, although still somewhat more concentrated in the East Coast. As such, I would like to add a West Coast utility at some point in the future. It seems like a lot of dividend investors really like Avista (AVA), so I will have to research that one a bit more.

      Take care!

  • HighyieldsoldierNo Gravatar December 26, 2012, 10:15 pm

    Actually, SO is in the process of building a new nuclear plant for the first time in 30 years on US soil…so you do get the nuclear componet, which may or may not be a good thing, depending on your view of this article…http://online.wsj.com/article/SB10001424127887324731304578193880676864240.html#articleTabs%3D article from the WSJ. In summary, they are expecting delays in its construction. I own SO shares as well, and plan to add more…but keep aware of this because nuclear plants are expensive to build(the expected tab is 15billion, but it may be more) and could hurt SOs bottom line over the next few years. I think your investment is sound, and you got in near the 52 week low as well, so thats good timing.

    • FI FighterNo Gravatar December 29, 2012, 2:40 pm

      David,

      Thanks for providing the link. Yeah, I remember reading up about SO opening up a nuclear plant a few months back. 2016-2017 timeframe seems ways away though. I’ll probably be close to early FI by then 🙂

      So, I’ll need SO to keep doing a good job of returning dividends until then. I think SO represents good value right now, and I may in fact add some more. Like everyone else, I’m just watching the fiscal cliff saga unfold.

      Happy hunting!

  • Greg@ClubThriftyNo Gravatar December 27, 2012, 4:08 am

    Congrats on your new holding. I hope it pays off for you.

    • FI FighterNo Gravatar December 29, 2012, 2:41 pm

      Greg,

      Thanks much! I hope it keeps paying indefinitely! 😉

  • MartinNo Gravatar December 27, 2012, 10:54 pm

    I like SO and have it in my watch list. I like that the company has nice dividend growth (4% as of this post) and with a yield at 4.5% it looks like a nicely balanced company. When my rules permit I will be adding this stock to my holdings too.

    • FI FighterNo Gravatar December 29, 2012, 2:42 pm

      Martin,

      The dividend yield on SO is very attractive, I agree. The dividend growth isn’t too bad either (for a utility, anyway), and they seem able to consistently keep the payout ratio at around 70%. Management seems to know what they are doing, and the dividend track record speaks for itself.

      Best wishes!

  • Brick By Brick Investing | MarvinNo Gravatar December 28, 2012, 7:29 am

    I’ve always kept an eye on SO but never fully done the analysis on the company. One of these day when I have the time I need to sit down and figure out how to properly value a utility company. I got stopped out of EXC during it’s fall off but enjoyed the great run up.

    • FI FighterNo Gravatar December 29, 2012, 2:44 pm

      Marvin,

      EXC had a tremendous run up, up until the middle of 2008 or so. If you bought in well before then, you were sitting pretty no matter what.

      SO is one of my favorites in the utility sector. Though I’ll probably look into adding maybe one or two more utilities in the future. Probably one more concentrated in the West Coast. I’m going to research AVA soon.

      Take care!

  • Compounding IncomeNo Gravatar December 28, 2012, 5:40 pm

    Good purchase man! SO is one of my favorite utilities, I picked up a few shares in November. So far in my investing career, utilities have been solid performers. Love the dividends.

    • FI FighterNo Gravatar December 29, 2012, 2:46 pm

      CI,

      Thanks. I noticed you purchased some SO back in November too. I was watching closely at the time, but didn’t quite get around to pulling the trigger. It can still be had at a good price, which is a big reason why I elected to get some now.

      Happy hunting!

Leave a Comment