The income theme in stock picking worked so well this year that it made lots of great defensive dividend stocks look pretty pricey — until recently, that is.
When it comes to dividends and defense, few sectors offer more in the way of payouts and protection than large-cap utility stocks. Of course, that’s hardly a secret, and a buying frenzy made valuations in the sector look a bit stretched.
Happily, Southern Co. (NYSE:SO) has seen its stock cool off significantly since late July, when the risk-on trade came back in force. Shares are down more than 5% since hitting a year-to-date high on July 26, lagging the broader market by about 7 percentage points.
The retreat has made SO’s valuation look much more compelling — especially if the market takes another big leg down. A return of the risk-off trade should lift defensive names like Southern Co., as well as the broader utilities sector.
Furthermore, this is a hardcore defensive stock with little correlation to the broader market. With a beta of 0.13, SO can be thought of as 87% less volatile than the S&P 500. Yes, it lags by a wide margin when everything is going up, but it also holds up far better when stocks sell off.
If you’re worried about a pullback, correction or full-on bear market, SO offers a port in the storm. And with the dividend currently yielding 4.2%, it’s a solid bet that hordes of other traders and investors will scurry for the safety of SO, too.
– Dan Burrows, InvestorPlace Feature Writer