This Durable Dividend Stock's Brilliant Strategy Will Pay Off for Decades
Utilities are capital-intensive businesses. They need to invest a lot of capital to maintain and expand their power plants and energy distribution assets. That means they tend to borrow a lot of money to support their operations.
While all utilities issue debt, Southern Company (NYSE: SO) has been very wise in how it uses the debt market. It brilliantly capitalized on the low-interest-rate environment in recent years to lock in relatively low-cost, long-term debt. As a result, it has largely insulated its business from the impact of higher rates, which will act as a headwind for some peers as more of their debt matures and rolls over to higher rates in the coming years. That puts Southern in an even better position to continue growing its extremely durable dividend.
Because it's typically cheaper to borrow money for a shorter term, many companies issued short-term debt when interest rates were low to save money. That strategy has turned out to be shortsighted now that rates have surged in the past year. As that debt matures, they'll pay a much higher interest rate to refinance.
Source Fool.com
