SSE plc (LON:SSE) provided investors with the most angst on Thursday with its shares topping the FTSE 100 fallers list after a first-half profit warning, but a pledge over dividends did provide a floor for the energy provider’s stock.
Russ Mould, investment director at AJ Bell noted that investors will be intrigued to see how SSE has stuck to a planned 3% increase in the payout to 97.5p for this year despite the substantial profit setback announced today.
He said: “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 final clearance from the competition authorities, due by 22 October – merge them with the nPower business owned by German firm Innogy, to leave SSE’s shareholders a two-thirds stake in the new venture.
Mould pointed out: “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.”
He said: “That will allow investors to assess the respective, distinctive merits of the two operations, their share prices and especially their dividend yields.”
Spin-off the key
The AJ Bell commentator said 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.
He concluded: “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.”
The AJ Bell investment director also noted that SSE is one of twenty-seven FTSE 100 firms to have increased their annual dividend every year for (at least) the last ten years.
However, he added, SSE is the only one to have not beaten the FTSE All-Share on total returns - capital gains plus dividends reinvested - basis over that time span.