MENU

Why SSE PLC Is A Great Share For Novice Investors

It seems like fate.

My recent enthusiasm for Centrica as a good investment for novices had barely been published, before Labour leader Ed Miliband started rattling his sabre at the nasty greedy energy companies.

It’s the companies that are responsible for energy being expensive these days, you see, and it’s nothing to do with actual out-of-the-ground prices soaring or demand being high. Dear Ed, bless his socialist heart, is planning to do what no leader has successfully done to date — he wants to buck the market.

Now, my bull case for electricity supplier SSE (LSE: SSE) is, not surprisingly, very similar to that for Centrica. But please don’t walk away at that, because I first want to address one specific thought…

Ed Miliband doesn’t matter

Politicians always like to rouse a good rabble, especially as elections become closer — and especially when, as is the case now, the unpopularity of the incumbent is practically handing it to the opposition on a plate. Whether the promises of politicians actually bear fruit is another matter, and I’m not going to even address the question of whether it’s all just hot air.

You see, the plan is only to freeze prices for 20 months if Labour should come to power in 2015 — he couldn’t even stretch it to two whole years!

Sure, that won’t be good for the energy companies or for those invested in them, and we’ve already been warned that capping prices will lead to less cash available for the infrastructure investment that is still much needed.

A price freeze won’t matter

But the question is whether any government has the nerve to wage all-out war on the energy companies. And they don’t, not a single one of them, because in the end they’d lose — energy is expensive, demand is high, and shortages would cripple the country. That’s just the way the market works, and I really don’t see any UK government these days actually being stupid enough to think they can buck it by dictating prices and still getting all the energy supplies they need.

So no, even if Ed does cap prices, it’ll be a ‘man of the people’ sop and  won’t be for long enough to do any real damage. And I know that, because…

Governments don’t matter

What’s your investment horizon? If you’re invested in shares at all, I’d say it needs to be at least a decade, better two. And if you’re just starting out and have your entire investment career ahead of you, you could easily be looking at 40 years or more. In that timescale, this government won’t matter, the next one won’t matter, and the one after that… you get the picture.

A price freeze for a couple of years at most? Well, if Ed really wants his little crowd-pleaser, let him have it and look beyond it.

What about the company?

I almost forgot about SSE itself there!

It’s got a captive market, regulated and predictable revenues, predictable costs, no need for massive dividend cover… and with the share price down a little to 1,472p at the moment, SSE’s forecast dividend would yield 6%! Ideal stuff for a novice investor I feel.

So don’t panic, just keep on investing in those safe long-term shares, and take no notice of politicians and their short-term meddling.

Finally, if you're convinced by the case for utilities companies, check out the Motley Fool's Top Income Share report. It's another in the same line of business, and at 5.7%, its yield is likely to be one of the most reliable in the FTSE.

If you want to know more, click here to get your free copy of the report today.

> Alan does not own any shares mentioned in this article.