SSE blows a fuse (but does that mean this is now a good time for investors to plug in?)

Russ Mould
12 September 2018

“There is always the exception that proves the rule. Twenty-seven FTSE 100 firms have increased their annual dividend every year for (at least) the last ten years and only one – SSE – has not beaten the FTSE All-Share on a total returns (capital gains plus dividends reinvested) basis over that time span.

 

Total shareholder return

Dividend CAGR

 

2008-18

2008-17

Ashtead

30,933.6%

27.8%

Hargreaves Lansdown

1760.8%

18.1%

Croda

882.1%

15.2%

Halma

822.6%

6.4%

InterContinental Hotels

696.6%

11.7%

DCC

662.9%

11.2%

Micro Focus International

583.3%

27.5%

Paddy Power Betfair

539.0%

16.8%

Intertek

518.9%

13.1%

St. James's Place

514.0%

25.6%

Compass

478.8%

10.8%

Scottish Mortgage

437.7%

3.6%

Shire

390.4%

15.2%

Whitbread

378.4%

10.7%

Bunzl

368.9%

8.4%

Prudential

295.9%

9.5%

Sage

280.9%

7.9%

Diageo

270.9%

6.1%

Associated British Foods

238.5%

7.3%

Johnson Matthey

181.0%

8.0%

Imperial Brands

127.6%

10.5%

Standard Life Aberdeen

122.8%

6.2%

BAE Systems

108.4%

4.2%

Vodafone

106.0%

5.4%

British American Tobacco

93.1%

8.8%

SSE

67.1%

3.7%

 

 

 

Average

1,667.7%

12.4%

FTSE 100

93.1%

5.7%

Source: Company accounts, Thomson Reuters Datastream. Covers period 12 September 2008 to 11 September 2018

“This shows the power of dividend growth when it comes to performance over the long term and investors will be intrigued to see how SSE has stuck to a planned 3% increase in the pay-out to 97.5p for this year despite the substantial profit setback announced today.

“The commitment to maintaining a dividend growth streak that dates back to 1992 may persuade some investors to look afresh at the stock today, especially in the context of the radical changes the company is planning for 2019.

“SSE intends to demerge its retail Energy Services operations and then – pending clearance from the competition authorities by 22 October – merge them with the nPower business owned by Innogy, to leave SSE’s shareholders a two-thirds stake in the new venture.

“That will leave the tightly regulated SSE ‘core’ Networks business which is still on track to record a mid-single digit increase in operating profit, on an adjusted basis, this year, despite today’s trading alert, where a sharp drop in earnings from Energy Services is a key culprit.

“That will allow investors to assess the respective, distinctive merits of the two operations, their share prices and especially their dividend yields.

“The spin-off could recover a big chunk of this year’s profit shortfall if the weather normalises relatively quickly, although it looks set to come with a lower dividend payment and yield, judging by analysts’ estimates. 

“Management’s plan to pay a 97.5p dividend per share for SSE under its current structure suggests the new, core business could come with a very meaty dividend yield that could catch the eye of income seekers, especially after today’s share price slide.”
 

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