Southern Company (SO 0.59%) is among the most dependable dividend stocks around. For the last 76 years, the utility has made dividend payments equal to or greater than the prior year’s level. Meanwhile, it has increased its payout in each of the last 22 consecutive years.
That stability and growth should continue. The company recently added another solar energy project to its portfolio, which should grow its cash flow. That enhances its already strong growth profile, partly powered by a new nuclear energy project. These investments should give the utility plenty of fuel to continue increasing its 4%-yielding dividend.
Renewable-powered growth
Southern Power, a subsidiary of Southern Company, recently announced the acquisition of its 30th solar energy project. It’s buying the 150 megawatt (MW) South Cheyenne Solar Facility from Qcells USA. It’s the company’s first solar facility in Wyoming and continues the expansion of its fleet across the country. Qcells expects to finish construction on the project in the first quarter of next year. The investment will generate predictable cash flow for Southern, secured by a 20-year power purchase agreement (PPA) for the electricity and associated renewable energy credits produced by the facility.
The new addition will grow Southern Power’s solar fleet to over 2.7 gigawatts (GW) and its total renewable energy capacity to nearly 5.3 GW when adding its 15 wind energy facilities. Like South Cheyanne, the other projects in this portfolio will generate predictable cash flow backed by long-term PPAs. This cash flow will grow as projects like South Cheyenne enter commercial service and Southern acquires additional facilities. That will provide Southern Company with growing streams of stable cash flow to support its steadily rising dividend.
It will also help continue to shift the company’s total energy mix toward cleaner energy:
Image source: Southern Company.
Powerful growth ahead
Renewable energy investments like South Cheyenne are one of many growth drivers for Southern Company. The biggest in the near term is its over $10.5 billion investment to build two new nuclear power units at its Vogtle Plant (Units 3 and 4). Unit 3 entered commercial service in July, while Unit 4 should begin commercial operations during the fourth quarter or early next year.
Once both units enter commercial service, they’ll produce a significant amount of cash flow and clean energy (each unit could power 500,000 homes and businesses). Southern forecasts that the two units will generate $700 million in incremental annual cash flow for the company. That will give Southern more money to invest in additional expansion opportunities (like investments in new clean power generation) and grow its dividend.
A powerful return contributor
Southern Energy’s reliable dividend is a significant part of its value proposition to investors:
Image source: Southern Company.
As that slide showcases, Southern Energy has grown a $1,000 investment made over 20 years ago into over $6,000. The steadily increasing dividend payment has powered the bulk of that total return.
That’s why it’s important to see the company investing money in projects like South Cheyenne and Vogtle Units 3 & 4 that will grow its stable cash flow. Those investments should support continued dividend stability and growth in the future, especially since they’re also aiding the clean energy transition. That should give Southern the power to continue producing an attractive total return for its investors.
A powerful dividend growth stock
Southern Company has been one of the more dependable dividend stocks over the decades. That should continue in the future. The company continues investing in projects like South Cheyenne and Vogtle Units 3 & 4 that generate relatively predictable and steady cash flow. That adds to its stable sources of income, giving it more fuel to invest in future projects and pay dividends. That durable and growing dividend makes Southern Company an excellent option for investors seeking reliable passive income.
Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.