I’m looking at some of your favourite FTSE 100 companies and examining how each will deliver their dividends. Today, I’m putting electricity utility SSE (LSE: SSE) under the microscope.
Dividend history
SSE has one of the best dividend records around. In announcing its annual results for the year ended March 2013, the board lifted the payout 5.1% from 80.1p to 84.2p — the fourteenth successive above-inflation dividend increase since the company’s first full-year dividend paid in 1998/99. Management said:
“SSE is now one of just five companies to have delivered better-than-inflation dividend growth every year since 1999, while remaining part of the FTSE 100 for at least 50% of that time”.
The table below shows SSE’s dividend record versus RPI inflation.
| SSE year end |
% SSE dividend increase |
% above RPI inflation |
|---|---|---|
| 2000 | 7.0 | 4.0 |
| 2001 | 9.1 | 7.3 |
| 2002 | 8.0 | 6.3 |
| 2003 | 8.0 | 5.1 |
| 2004 | 7.7 | 4.7 |
| 2005 | 12.7 | 9.9 |
| 2006 | 9.4 | 6.2 |
| 2007 | 18.3 | 14.0 |
| 2008 | 10.0 | 6.0 |
| 2009 | 9.1 | 9.6 |
| 2010 | 6.1 | 1.5 |
| 2011 | 7.1 | 1.9 |
| 2012 | 6.8 | 3.6 |
| 2013 | 5.1 | 2.0 |
SSE has delivered an average annual dividend increase of 8.9% through the period; and on average this has been 5.9% above inflation.
Current dividend policy
As stated in SSE’s most recent annual report, the company’s current dividend policy, which runs from 2013/14 onwards, is:
“To deliver annual dividend increases which are greater than RPI inflation while maintaining dividend cover over the medium term within a range around 1.5 times”.
Dividend prospects
The board said, within SSE’s first-quarter update for 2013/14, which was released last month, that the company is “on course” to deliver an inflation-beating increase in the full year dividend. And management added that its target remains to deliver above-inflation increases “in the years after that”.
Going back to the earlier table, you may have noticed that SSE’s dividend growth has been lower over the last four years, and that the increases have not been as far above inflation as previously. Annual growth has averaged 6.3% since 2010, representing an average 2.3% ahead of inflation.
With the Bank of England interest rate having been at an unprecedented low of 0.5% through the period, and yields on government bonds also compressed, SSE hasn’t had to shoot the lights out with its dividend in order to remain attractive to investors.
At a current share price of 1,555p, analyst forecasts of an 88p dividend for the year ending March 2014 give a prospective starting income of 5.7% for investors today. The analysts see the payout rising 4.5% to around 92p the following year.
SSE has clear attractions for income investors, but I have to tell you that the Motley Fool’s chief analyst believes there’s another blue-chip company — currently offering a prospective income of 5.8% — that right now ranks as the UK’s top income stock.
You can read our leading analyst’s in-depth review of the company in this exclusive free report. The report comes with no obligation and can be in your inbox in seconds — simply click here.
> G A Chester does not own any shares mentioned in this article.