SSE (SSE) is one of the 'big six' energy companies, made up of three primary divisions: wholesale sourcing and production of electricity; distribution and transmission through its networks; and retail supply of gas, electricity and related services to household, industrial and commercial customers. It boasts a dividend that has risen every year since 1999; but recent years have seen concerns over earnings coverage push its yield to levels that question its sustainability. We think the market is overly cautious, making this a good time to buy for income.
High dividend yield
Earnings coverage holding up
Rising renewable capacity
Cheap against history
Lingering political risks
Declining customer numbers
Through its five energy network companies, SSE is the only UK energy company to be involved in electricity transmission, electricity distribution and gas distribution. These provide a reliable income due to the regulated nature of the market, and means its returns are more utility-like than Centrica (CNA), with its major British Gas business. As of the most recent results, SSE's networks had a regulatory asset value of £7.68bn, down 4 per cent in the year following the partial sale of Scotia Gas Networks last year but offset by development elsewhere. The group is investing heavily in improving and expanding its networks, and expects that asset value to reach around £9bn by 2020.