SSE's (LON:SSE) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of SSE plc (LON:SSE) has announced that it will be paying its dividend of £0.677 on the 21st of September, an increased payment from last year's comparable dividend. This makes the dividend yield 5.3%, which is above the industry average.

See our latest analysis for SSE

SSE's Distributions May Be Difficult To Sustain

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Even in the absence of profits, SSE is paying a dividend. The company is also yet to generate cash flow, so the dividend sustainability is definitely questionable.

Looking forward, earnings per share is forecast to rise by 95.8% over the next year. This is the right direction to be moving, but it is not enough to achieve profitability. Unfortunately, for the dividend to continue at current levels the company definitely needs to get there sooner rather than later.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut 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. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Company Could Face Some Challenges Growing The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that SSE has been growing its earnings per share at 13% a year over the past five years. It's not great that the company is not turning a profit, but the decent growth in recent years is certainly 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

In summary, while it's always good to see the dividend being raised, we don't think SSE's payments are rock solid. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. We don't think SSE is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 4 warning signs for SSE you should be aware of, and 2 of them shouldn't be ignored. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.