FTSE 100

Do SSE shares offer dividend investing potential?

Could SSE (LON: SSE) offer sound dividend investing prospects after its recent share price rise?

The SSE (LON: SSE) share price has risen roughly in line with the FTSE 100 index (INDEXFTSE: UKX) over the past year. It is up by around 16%, versus 19% for the index, during the period.

As such, its dividend yield has fallen to just over 5%. This, however, is around 1.7 percentage points higher than the FTSE 100’s dividend yield. Some of the index’s constituents are yet to return to dividend levels that equal pre-pandemic amounts.

As such, SSE could be viewed as an attractive income stock based on its dividend yield. Moreover, it remains committed to its five-year dividend plan. This is where it aims to increase dividends per share at the same rate as inflation over the period 2018-2023.

With inflation moving higher, and widely expected to continue its recent trend, the company’s dividend plan could become more attractive for income investors.

A renewable future

Moreover, SSE’s overall strategy could position it for long-term growth. It is gradually exiting businesses that it views as ‘non-core’, which in many cases means that they are not conducive to its ambitious net-zero targets.

For example, it recently completed the sale of its contracting business. It also recently agreed to offload its stake in ScotiaGas Networks (SGN), which is focused on the transmission of gas.

In their place, the firm continues to invest in renewable assets, notably offshore wind, that are expected to become a greater part of the UK’s energy mix. This could equate to a more sustainable long-term future for SSE’s dividend.

Long-term share price prospects

Of course, renewables can prove to be less reliable than fossil fuel assets. As has been the case this year, lower amounts of wind has caused disruption to electricity markets. This could mean that SSE’s financial performance, and possibly its share price, is more volatile than for other FTSE 100 index income stocks.

In addition, the company faces a new regulatory period from 2023 that could affect its income prospects. Its current dividend plan expires in 2023, which could mean that its replacement is less generous – especially if rampant inflation emerges that makes an annual RPI or CPI increase unsustainable.

However, these risks may be factored into the SSE share price. It remains one of the highest-yielding stocks in the FTSE 100 index. And, with what appears to be a sound strategy that has ESG credentials, it could become increasingly appealing to investors as the world transitions to a low-carbon future.

Not Investment Advice Note: Views expressed are those of the writer. The author does not own any stocks mentioned. The article is information, not advice. Share prices can rise and fall. Past returns are not a guide to the future. Please do your own research.

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