Today I am looking at why I believe SSE (LSE: SSE) (NASDAQOTH: SSEZY.US) is set to provide electrifying returns for my own personal stocks and shares portfolio.
Heavy capex drive to underpin earnings expansion
SSE has promised to devote large pots of cash to both its Networks and Wholesale operations in order to drive future earnings growth, and affirmed that it has earmarked £1.5bn for capital expenditure in the current year.
The company saw aggregated electricity generation from its hydroelectric and biomass plants, and onshore and offshore wind farms, jump 32% in April-June, a result which helped push total output 14% higher. And SSE is looking to build on this blistering improvement from its portfolio of renewable sources, including boosting capacity from its Calliachar wind farm in Scotland.
Elsewhere, the firm is also making steady progress in the construction of its combined cycle gas turbine (CCGT) plant in Southern Ireland, which it hopes to switch on in the latter half of 2014. And in Networks SSE is in the process of reinforcing and updating the transmission network between Dounreay and Beauly in Scotland.
A cheap pick at current prices
Although SSE witnessed a slight drop in the number of its electricity and gas customers in April-June, to 9.46m from 9.47m, financial analysts expect strength across the group to keep earnings resilient over the medium term. Indeed, a 1% and 6% increase in earnings per share are anticipated for the years ending March 2014 and March 2015 respectively.
These projections leave the business dealing on a P/E rating of 13.1 and 12.3 for this year and next. In my opinion this shows excellent bang for your buck when tallied up against a forward reading of 17.6 for the entire electricity sector.
An energising dividend play
SSE can lay claim to an impressive dividend record virtually unrivalled by its London-listed compatriots — the company has relentlessly lifted the full-year dividend since 1999, a feat matched only by one other stock market participant.
And the electricity giant confirmed in July’s interims that its ‘core financial objective is to deliver annual, above-RPI inflation increases‘, a policy which it expects to maintain not just this year but well into the future.
Indeed, City analysts expect annual payouts to continue rattling along at a healthy pace. A payout of 88.3p per share is expected for 2014, up 4.9% from 84.2p in 2013. And this expected to rise an additional 4.5% in 2015 to 92.3p per share. These prospective dividends carry generous yields of 5.6% and 5.9%, which I personally consider too good to pass up — by comparison the FTSE 100 forward average stands at 3.2%.
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> Royston owns shares in SSE.