Why Southern Company Stock Surged 45% in 2019

What happened

Utilities don't typically produce market-smashing returns. That's what makes Southern Company's (NYSE: SO) 2019 so spectacular: It delivered an eye-popping 45% gain last year, according to data provided by S&P Global Market Intelligence. That easily outpaced the S&P 500, which rallied an impressive 28.9% in 2019. Add in dividends, and the outperformance widened to a total return of 51.7% for Southern versus 31.5% for the S&P.

Here's a look back at what powered Southern Company's strong year.  

Several communication towers at dusk

Image source: Getty Images.

So what

Southern Company delivered stronger-than-expected financial results through the third quarter, with its performance in that period especially strong. It generated $1.34 per share of adjusted earnings, which topped the consensus estimate of analysts by $0.20 per share. Because of that, the company expects its full-year results to be at or slightly above its guidance range. 

Meanwhile, the utility also got some good news on the regulatory front as the Georgia Public Services Commission approved a rate increase for its Georgia Power subsidiary. On top of that, it continued to make progress on its Vogtle nuclear project, which is on track to start up in the 2021 to 2022 timeframe. However, the company did experience some setbacks on two gas pipeline projects. Because of that, both likely won't enter service until 2021. 

However, investors overlooked those setbacks and piled into shares of Southern and other utilities because their high-yielding dividends are becoming increasingly attractive in an environment where the Federal Reserve is cutting interest rates. Yield-seeking investors see utilities like Southern as a lower-risk way to collect a high-yielding income stream as the payouts on bonds decline with interest rates. 

Now what

Shares of Southern Company aren't as attractive as they were to start 2019 since its valuation has risen to about 20 times earnings, which is a bit rich for a slow-growing utility. Meanwhile, its yield has fallen to around 3.9%, which isn't as enticing as other options in the energy sector. Because of that, yield-seeking investors might want to look elsewhere, with several pipeline stocks in particular looking quite compelling right now.

10 stocks we like better than Southern Company
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Southern Company wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks


*Stock Advisor returns as of December 1, 2019


Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Latest Markets Videos

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More