History Says This Dividend Stock Can Protect Your Portfolio if a Stock Market Slump Is Coming

With the S&P 500 index (SNPINDEX: ^GSPC) hovering near all-time highs despite geopolitical conflicts, high inflation, and concerns around an AI bubble, investors are worried about a stock market slump. Southern Company (NYSE: SO) can help, but you have to look at the full picture to understand why. And that means considering both the stock price and the importance of collecting a reliable dividend. Here's what you need to know.

Down, but not as much

Wall Street tends to throw the baby out with the bathwater when a bear market hits. So there aren't many places to hide. Usually, the best you can hope for is to own stocks that don't go down as much as the market. Southern Company has outperformed, meaning it didn't fall as much, during three of the last four bear markets.

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The oddball in that mix was the bear market associated with the coronavirus pandemic, when Southern's stock fell slightly more than the S&P 500 index. That downturn, however, was an unusual one because of the economic shutdowns used to slow the spread of the illness. That hit utilities hard because investors feared that business-related revenues would collapse. Luckily, Southern Company survived the period just fine. On the whole, if you are looking for a safe place in a storm, Southern Company looks like a good option.

More to the story than the stock price

That said, regulated utilities are known for both their reliable businesses and their reliable dividends. On the dividend front, Southern Company is a standout. For starters, it offers an attractive dividend yield of 3.2% as of this writing. The S&P's yield is a tiny 1% or so. That allows you to focus on collecting an above-market dividend rather than on stock prices during a downturn.

You can take further comfort from the fact that the dividend has been increased annually for 25 years. However, even that isn't the whole picture, because the dividend has been increased or held steady for 79 years. When investors are facing the next bear market, history suggests that Southern will not only see less of a hit to its share price, but that investors can comfortably focus on its dividend instead of its stock price.

Can you invest like Buffett?

Staying invested through a deep market downturn is emotionally difficult. However, buying and holding good businesses to benefit from their long-term growth is one of the best ways to build wealth over time. That's one of the key tenets of Warren Buffett's successful investment approach, noting that he built a large utility businesses within Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB) while he was CEO. Maybe you aren't Warren Buffett, but you can invest like him by taking a closer look at utility Southern Company today (before the next bear comes along).

Reuben Gregg Brewer has positions in Southern Company. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.