The Southern Company

(New York Stock Exchange)
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Somewhat Bullish +50

Better Dividend Stock for Retirees: Southern Company vs. AEP

Dividend AI-generated analysis

πŸ“ˆ Southern Company offers a current dividend yield of 3.7% and has increased its payout for 25 consecutive years.

πŸ“‰ American Electric Power (AEP) grew its dividend at an annual rate of 5.7% from fiscal 2020 to 2025, outpacing Southern's 3% growth.

⚑ Data center demand is driving significant business growth for both utilities, with Southern seeing a 55% rise in usage in Q2 2026.

πŸ—οΈ AEP is executing a $78 billion five-year capital plan to fund infrastructure expansion and support higher earnings growth.

πŸ’° Southern Company maintains a lower payout ratio of 68% for fiscal 2025 compared to AEP's 63%, though analysts expect both to remain conservative.

πŸ“‰ AEP carries higher leverage with net debt at 5.8x EBITDA versus Southern's 5.1x EBITDA as it funds its growth initiatives.

πŸš€ Management at AEP reaffirmed guidance for 7% to 9% annual operating earnings growth through 2030.

πŸ“Š Analysts forecast AEP's normalized EPS rising from $5.97 in fiscal 2025 to $7.58 by fiscal 2028.

Bullish Signals
  • Southern Company has raised its annual dividend rate to $3.04 a share, marking the 25th consecutive annual increase and 79 years of paying dividends equal to or greater than the previous year.
  • Data center usage at Southern rose 55% in the second quarter of 2026, with contracted and large-load agreements now topping 17 gigawatts.
  • Southern secured a major 25-year contract for 3.2 gigawatts with OpenAI in Georgia, securing long-term revenue visibility.
  • Normalized EPS at Southern rose from $2.89 in fiscal 2016 to $4.30 in fiscal 2025, demonstrating strong earnings growth that outpaced dividend increases.
  • Analysts expect Southern's payout ratio to remain at a comfortable 66% for fiscal 2026, indicating sustainable dividend coverage.
Risk Factors
  • Southern Company has experienced slower earnings growth of 3.0% annually from fiscal 2020 to 2025 compared to AEP's faster expansion.
  • The company plans to raise $1.1 billion in new equity by 2030, which may dilute shareholders or indicate a need for capital beyond organic cash flow.
  • Southern's current yield of 3.7% is lower than AEP's projected yield over a decade-long horizon due to AEP's faster dividend growth rate.
Full Analysis
The article compares Southern Company (SO) and American Electric Power (AEP) as dividend-focused utility stocks, highlighting that while SO offers a higher current yield of 3.7% compared to AEP's 3.3%, AEP has demonstrated faster annual dividend growth rates from fiscal 2020 to 2025. Both utilities are benefiting from surging data center demand, with Southern reporting a 55% increase in usage during the second quarter of 2026 and securing major long-term contracts, including a significant agreement with OpenAI. AEP similarly reports growing contracted load additions driven by hyperscalers and industrial customers. AEP is positioned for faster future dividend growth due to its lower payout ratio relative to earnings and management's guidance for 7% to 9% annual operating earnings growth through 2030. However, this strategy involves higher leverage, with AEP carrying net debt of 5.8x EBITDA against Southern's 5.1x to fund a substantial $78 billion capital plan. Analysts project that while Southern provides a larger immediate income check, AEP's compounding growth will likely surpass Southern's total return over a decade-long horizon, despite the higher valuation multiple and debt load associated with its expansion strategy.