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Southern Co (SO), Aqua America (WTR) – Dividend Growth You Can Bank On

Dividend stocks, especially utilities like Aqua America (WTR) and Southern Company (SO) are core to any portfolio, despite not winning any trophies for sexiest stock around any time soon.


Having a bedrock of solid dividend growers like these utilities, however, allow use of your capital for more adventurous options, since WTR and SO stock will keep the home fire burning, year in and year out.

What Aqua America Does (WTR)

WTR is essentially a water utility that provides water to 3 million people in communities, cities and towns across Illinois, Indiana, New Jersey, Ohio, North Carolina, Texas, Pennsylvania and Virginia.

This regulated sector is the main driver of Aqua America’s business, which it grows primarily through the acquisition of communities or the companies that service new regions.

When struggling to make budgets, Aqua America looks attractive for municipalities eager to operate their own water and wastewater plants.

And in recent years, its newest growth opportunities include also operating two subsidiaries focusing on an unregulated business:

1) Aqua Infrastructure focuses on planning, permitting, construction and professional management of freshwater pipelines in the shale industry.

2) While Aqua Resources focuses on liquid waste hauling and disposal, as well as water and wastewater services including line repair and protection in support of and as a complement to its regulated operations.

The Marcellus Shale is one of the biggest shale deposits in the U.S. and covers much of Aqua America’s service area, so this tends to drive growth in good times. But what has carried WTR stock recently has been its regulated business. Once domestic drilling comes back in line, the unregulated business will certainly provide a major boost to revenue.

In the third quarter, Aqua America saw a nice 5% bump in revenue, largely from regulated operations. The warm-for-longer weather equated to more people using more water, helping keep the company and its growth on target.

The stock is up nearly 10% year to date, and when you add in the 2.4% dividend, this is one liquid utility with a solid return.

But because shale production is down right now, it’s also a good time to get into a secondary beneficiary of the domestic energy boom while prices are low.

What Souther Company Does (SO)

As for Southern Co, this is one of the largest public electricity utilities in the country, and certainly one of the top 3 on the Eastern seaboard.

Once the symbol of coal-consuming dirty power, SO has transformed itself into a next-generation power company — a difficult feat for a small utility, much less one of SO’s size.

Now the growth driver for Southern Co is alternative energy: This Georgia-based behemoth has the unique notoriety of being the only utility that is building a new nuclear power plant in the U.S.

It is also now, with the merger with AGL Resources (AGL), the largest natural gas utility in the U.S., and it has acquired significant solar power generation assets from First Solar (FSLR).

Because interest rates are so low (for now), this is the ideal time for large, asset heavy companies like Southern Company to retool. And SO has taken great advantage by positioning itself for the future growth in demand from its current markets as well as it new markets.

Also, by generating and consuming more clean fuels, it has less to worry about from federal air quality regulations when the government comes knocking on its door.

Best of all: This well-positioned, rock solid utility is throwing off a 4.9% dividend. And because of concerns over its nuke construction, investors have been skittish this year, which makes it a bargain for long-term total return.

By the way, the nuke construction issue has been resolved and everything is on time and in budget.

Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.

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