Linked here’s a detailed quantitative evaluation of Southern Company (SO). Beneath are some highlights from the above linked evaluation:
Firm Description: Southern Firm is an Atlanta-based vitality holding firm and is likely one of the largest producers of electrical energy within the U.S.
Fair Value: In calculating honest worth, I take into account the NPV MMA Differential Truthful Worth together with these 4 calculations of honest worth, see web page 2 of the linked PDF for an in depth description:
1. Avg. Excessive Yield Worth
2. 20-12 months DCF Worth
3. Avg. P/E Worth
4. Graham Quantity
SO is buying and selling at a premium to all 4 valuations above. When additionally contemplating the NPV MMA Differential, the inventory is buying and selling at a 42.8% premium to its calculated honest worth of $48.61. SO didn’t earn any Stars on this part.
Dividend Analytical Data: On this part there are three doable Stars and three key metrics, see web page 2 of the linked PDF for an in depth description:
1. Free Money Move Payout
2. Debt To Complete Capital
3. Key Metrics
4. Dividend Progress Price
5. Years of Div. Progress
6. Rolling 4-yr Div. > 15%
SO earned one Star on this part for 3.) above. SO earned a Star for having a suitable rating in no less than two of the 4 Key Metrics measured. The corporate has paid a money dividend to shareholders yearly since 1948 and has elevated its dividend funds for 22 consecutive years.
Dividend Income vs. MMA: Why would you assume the fairness danger and spend money on a dividend inventory in the event you may earn a greater return in a a lot much less dangerous cash market account (MMA) or Treasury bond? This part compares the incomes means of this inventory with a high yield MMA. Two objects are thought-about on this part, see web page 2 of the linked PDF for an in depth description:
1. NPV MMA Diff.
2. Years to > MMA
The NPV MMA Diff. of the $436 is under the $1,300 goal I search for in a inventory that has elevated dividends so long as SO has. The inventory’s present yield of 4% exceeds the three.75% estimated 20-year common MMA charge.
Friends: The corporate’s peer group consists of: NextEra Power, Inc. (NEE) with a 3.0% yield, Entergy Company (ETR) with a 4.4% yield and CenterPoint Power, Inc. (CNP) with a 2.8% yield.
Conclusion: SO didn’t earn any Stars within the Truthful Worth part, earned one Star within the Dividend Analytical Knowledge part and didn’t earn any Stars within the Dividend Earnings vs. MMA part for a complete of 1 Star. This quantitatively ranks SO as a 1-Star Very Weak inventory.
Utilizing my D4L-PreScreen.xls mannequin, I made up my mind the share worth would want to lower to $49.25 earlier than SO’s NPV MMA Differential elevated to the $1,300 minimal that I search for in a inventory with 22 years of consecutive dividend will increase. At that worth the inventory would yield 5.6%.
Resetting the D4L-PreScreen.xls mannequin and fixing for the dividend progress charge wanted to generate the goal $1,400 NPV MMA Differential, the calculated charge is 6.5%. This dividend progress charge is greater than the three.0% used on this evaluation, thus offering no margin of security. SO has a risk rating of two.00, which classifies it as a Medium danger inventory.
The inventory is at the moment buying and selling at a premium to its $48.61 calculated honest worth. As well as, the corporate’s excessive debt to complete capital of 64% (up from 61%) and destructive free money movement payout of -156% (prior -208%) will preserve me from including to my place at the moment.
Disclaimer: Materials offered right here is for informational functions solely. The above quantitative inventory evaluation, together with the Star ranking, is mechanically calculated and is predicated on historic data. The evaluation assumes the inventory will carry out sooner or later because it has prior to now. That is usually by no means true. Earlier than shopping for or promoting any inventory you ought to do your personal analysis and attain your personal conclusion. See my Disclaimer for extra data.
Full Disclosure: On the time of this writing, I used to be lengthy in SO (0.2% of my Dividend Progress Shares Portfolio).
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