I n the 1970s when many businesses fled the Rust Belt to go south and west, some savvy investors bought utility stocks in those regions. All those businesses and workers were going to need electricity, so why not go with the flow?
In the current stock market , as investors anticipate a rise in interest rates, some say utilities will be losers.
However, there’s a flip side to consider. Look atSouthern Co. ( SO ), for instance.
The utility pays a dividend that currently yields 4.7% annually. Even if interest rates begin to rise steadily, and that isn’t certain, much time will pass before that 4.7% payout looks routine.
Also, if the economy continues to improve, Southern will see demand for electricity grow. Southern owns electric utilities in Alabama, Georgia, Florida and Mississippi. The company’s nuclear facilities provide about 20% of the electricity used in Alabama and Georgia.
At the July 29 call, CEO Thomas Fanning said, “For the first time in a decade we have experienced two consecutive quarters of growth in all three retail customer classes — residential, commercial and industrial.”
The key word is growth.
Fanning added this comment: “In particular, we are encouraged by the developing strength of the residential sector, fueled in large part by a healthy growth in the housing sector.”
Housing stocks are picking up momentum right now, and utilities could enjoy the benefit of more residential hookups.
The improving situation doesn’t mean that Southern Company or any other utility is going to become a CAN SLIM stock. But it does suggest that these stocks might continue to be attractive to dividend investors.
Southern’s cash flow per share was $5.37 last year, well above EPS of $2.80.
The stock regained its 50-day line in July and its 200-day line this month. Southern’s relative price strength rating is 72, which puts it above almost three of every four stocks.