This Dividend Stock Is a Safe Bet Regardless of Market Conditions

It’s been a rough market of late. The S&P 500 (^GSPC 2.21%) is down 17% from its January high, and given still-rampant inflation, it could easily continue falling. Not even the average dividend stock is proving to be a safe haven, as the specter of rising interest rates works to drive dividend yields higher by pushing dividend stock prices lower. Never mind the sort of difficulties that higher costs can create in terms of those dividends’ affordability.

There’s a noteworthy exception to this headwind, however, that’s paying a pretty good yield. Take a look at The Southern Company (SO -0.57%) if you’re on the hunt for a safe dividend-paying name in the midst of this market-wide carnage. It’s got staying power, and has proven it by resisting the broad bearish tide.

The Southern Company is a dividend machine

If you’re not familiar with it, Southern Company is a utility stock. The organization provides electricity (and natural gas) to 9 million people, mostly in the southern portion of the United States. It’s been around for a long, long time, adding companies to its portfolio along the way to evolve into an operation generating annual revenue on the order of $23 billion.

Southern Company’s history and sales aren’t the highlight for investors, however. It’s not really profits either, although its profits are important. Most impressive about this particular company is its 21 consecutive years of annual dividend increases.

SO Dividend data by YCharts

It can afford these payouts too. Last year’s bottom line of $3.41 per share more than covered the company’s per-share payout of $2.62, as did 2020’s earnings of $3.25 per share, when it dished out $2.62 worth of dividend payments.

That’s the nature of the utility business

The secret of these reliable, stable results and payments isn’t a secret at all. It’s the nature of the business.

Image source: Getty Images.

Think about it. Consumers might postpone the purchase of a new car or skip a trip to the mall. But they generally keep the lights on no matter what it takes to do so. And although any rate hikes a power provider imposes typically have to be approved by regulators, it’s a rarity for a regulator to reject such a request. Uninterrupted electricity is necessary, after all, and switching to a different utility company can be costly as well as complicated.

To this end, the Bureau of Labor Statistics indicates that the average price of electricity in the United States has nearly doubled since the year 2000, with a lot more yearly rate increases than decreases during that time.

As impressive as this never-ending growth trend is, there’s a specific, strategic reason investors might want to take a closer look at The Southern Company right now, even if current income isn’t your goal. That’s the stock’s surprising resilience. While the S&P 500 is down 17% since early January, SO shares have defied the odds and now stand more than 8% above where they started the year.

Don’t be too surprised, though. Money being pulled out of more aggressive growth stocks isn’t always necessarily parked on the sidelines. Some investors always hunt for the best option available to them at the time. Right now utility stocks are a top choice. In some regards, it’s an even smarter and safer bet than cash, as rampant inflation is turning the deteriorating value of the dollar into a full-blown liability.

Don’t make it complicated

The $64,000 question is, of course, how much more productive is a stake in The Southern Company than any of your alternatives? The stock’s current yield is just under 3.7%, versus next to nothing for money market accounts, while less income-driving, growth-oriented stocks still pose a significant risk of even more downside.

That’s not to suggest Southern is a risk-free option, mind you. There are always risks. New legislation could make the electricity business more complicated and expensive. Investors as a whole could also change their minds about the utility sector being the safe haven they’re treating it as now. You just never know.

Given what we can and do know about the business, however, and how this stock’s held up when so many others haven’t, there aren’t too many other better ways to protect your portfolio from the market’s current, mostly bearish turbulence.