Southern Company Is One of the Largest Utilities Companies by Market Cap. But Is It a Buy?

Key Points

• Southern Company is a sprawling utility business with strong positioning for a nuclear energy resurgence.

• The dividend offers a solid starting yield and comes with growth potential.

• However, the stock may not be as attractive following its recent rally.

• 10 stocks we like better than Southern Company ›

Providing key energy resources, such as electricity and natural gas, to consumers and businesses isn't easy. However, it's a big industry, and that's where utility companies shine.

The Motley Fool recently researched the largest utility companies, and Southern Company (NYSE: SO) ranked third, with a market capitalization of just over $100 billion. The utility giant seemingly does it all; it operates electric and gas utilities, provides fiber optic and wireless communications services, and sells wholesale energy. The company has over 9 million customers across the southeastern United States.

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But is Southern Company worth your hard-earned cash today?

Here's how the stock might appeal to investors and whether it's a buy currently.

Image source: Getty Images.

Positioned for a resurgence in nuclear

The surge in data center construction for artificial intelligence and cloud computing could strain the U.S. electric grid. Goldman Sachs estimates that data center power consumption will rise by 165% from 2023 levels by the end of this decade.

That has revived interest in nuclear power. Some of the leading technology companies have already begun inking deals with nuclear companies to supply power, and the Trump administration is calling for increased investment in nuclear to quadruple the country's capacity by 2050.

Southern Company is positioned well as an incumbent leader in nuclear power. Its subsidiary, Southern Nuclear, operates eight nuclear units across three power plants, including its recently completed Vogtle Units 3 (2023) and 4 (2024), the first newly built commercial units in the United States in approximately three decades.

Vogtle Units 3 and 4 took approximately 15 years to build and cost over $36 billion, so having this done ahead of what could be a golden age for nuclear power demand is a key advantage. It also frees up Southern Company from what has been a costly endeavor, to say the least.

A steady and growing dividend

Utility companies are typically stable investments and fantastic dividend stocks. People almost always need energy, and the regulated nature of the industry limits competition in exchange for continued investment and price stability from the utilities.

Southern Company operates multiple subsidiaries, spanning power generation, transmission, electric and gas utilities, nuclear, and telecommunications. Cumulatively, Southern Company anticipates 8% annualized load growth (power demand) through 2029, translating to 5% to 7% annualized long-term earnings-per-share growth.

That is more than enough to fund continued dividend increases. Southern Company already has an established dividend track record of 24 consecutive annual increases and hasn't cut its dividend in 78 years. The stock's dividend yield is 3.2% at its current share price.

Is Southern Company a buy?

That growth and dividend could push the stock's annualized investment returns to 8% to 10%. That won't excite everyone, but utility stocks are famously resilient, and Southern Company's beta of just 0.38 should allow shareholders to sleep well at night when the broader market tumbles.

Southern Company's stock has risen about 16% over the past year, likely due, at least in part, to the increased excitement surrounding nuclear energy producers.

I probably wouldn't call Southern Company stock a bargain. Not at a price-to-earnings ratio of 21, using 2025 estimated earnings, when the business is expecting 5% to 7% annualized earnings growth. Management indicated there could be some upside to its growth forecast, so perhaps Southern Company comes in at the high end or even exceeds that. However, that's speculation at this point.

It's probably fine to nibble on Southern Company at its current price. But, ideally, the stock would pull back to around 17 to 18 times earnings, a more attractive valuation for a slow-and-steady stalwart like Southern Company.

Should you invest $1,000 in Southern Company right now?

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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool has a disclosure policy.