Many top FTSE 100 companies are currently offering dividends that knock spots off the interest you can get from cash or bonds.
In this festive series of articles, I’m assessing how the companies measure up as income-generators, by looking at dividends past, dividends present and dividends yet to come.
Today, it’s the turn of utilities group SSE (LSE: SSE) (NASDAQOTH: SSEZY.US).
Dividends past
The table below shows SSE’s five-year earnings and dividend record.
| Â | 2008/9 | 2009/10 | 2010/11 | 2011/12 | 2012/13 |
|---|---|---|---|---|---|
| Adjusted earnings per share (EPS) | 108.0p | 110.2p | 112.3p | 112.7p | 118.0p |
| Ordinary dividend per share | 66.0p | 70.0p | 75.0p | 80.1p | 84.2p |
| Dividend growth | 9.1% | 6.1% | 7.1% | 6.8% | 5.1% |
As you can see, SSE has increased its dividend at a fairly steady rate over the last five years. The average annual increase comes out at 6.8% — well ahead of inflation.
In total, SSE has paid out 375.3p a share over the period, covered 1.5 times by ‘adjusted’ (underlying) EPS of 561.2p. For the latest year (2012/13), cover of the 84.2p dividend was a tad lower at 1.4.
A solid dividend performance through difficult economic times.
Dividends present
For the current year (ending March 2014), SSE has already declared an interim dividend of 26p a share, which any investor buying before the ex-dividend date of 22 January will collect.
Analysts are expecting a final dividend of 58.9p when the company announces its annual results — giving a 2013/14 full-year payout of 87.9p, up 4.4% on last year. EPS is forecast to be flat, reducing dividend cover a further notch to 1.3.
At a share price of 1,350p, SSE’s expected current-year dividend represents a yield of 6.5%.
Dividends yet to come
Analysts see similar dividend growth for 2014/15, with the payout rising 4.3% to 91.7p. Earnings growth is expected to resume, with EPS rising 5.9% to 125p, and dividend cover edging back up to 1.4.
SSE’s policy is to deliver annual dividend increases above RPI inflation while maintaining dividend cover over the medium term at around 1.5 times.
Analysts’ 4.4% and 4.3% dividend growth forecasts for the current year and next year are below the average of the last five years. In the near term, there’s little incentive for SSE to increase the dividend much above these levels.
The current yield on the shares of 6.5% compares favourably with the pitiful interest on cash and bonds; inflation is low; dividend cover is a bit below the company’s target; and energy companies’ profits and rising bills are currently the subject of intense public and political debate.
Shareholders can be optimistic about continued annual dividend increases ahead of inflation — though perhaps not so far ahead as in the past five years if politicians put a crimp in energy utilities’ profits.