SSE plc (LON:SSE) has announced that it will be increasing its dividend from last year's comparable payment on the 21st of September to £0.677. This will take the annual payment to 5.2% of the stock price, which is above what most companies in the industry pay.
View our latest analysis for SSE
SSE's Distributions May Be Difficult To Sustain
A big dividend yield for a few years doesn't mean much if it can't be sustained. Even though SSE is not generating a profit, it is still paying a dividend. It is also not generating any free cash flow, we definitely have concerns when it comes to the sustainability of the dividend.
Analysts expect the EPS to grow by 95.8% over the next 12 months. The company seems to be going down the right path, but it will take a little bit longer than a year to cross over into profitability. Unless this can be done in short order, the dividend might be difficult to sustain.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was £0.842 in 2013, and the most recent fiscal year payment was £0.967. This implies that the company grew its distributions at a yearly rate of about 1.4% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.
The Company Could Face Some Challenges Growing The Dividend
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. SSE has impressed us by growing EPS at 13% per year over the past five years. It's not an ideal situation that the company isn't turning a profit but the growth recently is a positive sign. If the company can become profitable soon, continuing on this trajectory would bode well for the future of the dividend.
SSE's Dividend Doesn't Look Sustainable
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. This company is not in the top tier of income providing stocks.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 4 warning signs for SSE (of which 2 shouldn't be ignored!) you should know about. Is SSE not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
About LSE:SSE
SSE
Engages in the generation, transmission, distribution, and supply of electricity.
Undervalued with proven track record.
