Is It Still Safe To Buy SSE PLC?

In this strong market, should you still buy SSE PLC (LON: SSE)?

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The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

I’m always searching for shares that can help ordinary investors like you make money from the stock market. However, many people are currently worried the market has been overheating.

So right now I’m analysing some of the most popular companies in the FTSE 100, hoping to establish if they can continue to outperform in today’s uncertain economy.

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Today I’m looking at SSE (LSE: SSE) to determine whether the shares are still safe to buy at 1,604p.

So, how’s business going?

Like the majority of its utility peers, SSE has benefited from the severe winter conditions the UK experienced earlier this year.

Indeed, for the first quarter of 2013, the company noted a 21% increase in customer gas consumption and a 5% increase in electricity consumption.

However, due to the harsh winter, the company’s electricity network in Scotland suffered an unprecedented amount of damage.

Furthermore, the company has recently been subjected to the scrutiny of regulators, which resulted in a £10.5m fine for mis-selling energy plans to customers.

Moreover, this mis-selling scandal led to a 5% rise in customer complaints and a 1% fall in the number of SSE’s residential customers.

Having said that, the company still remains highly profitable and despite an 11% fall in revenue, the company noted a 6% rise in profits thanks to the colder winter and lower operating costs.

Expected growth

Unfortunately, City analysts believe that, due to higher capital spending and a warm summer, SSE’s earnings will fall this year before rebounding in 2014.

City forecasts currently predict earnings of 117p per share for this year (a fall of 1%) and 124p for 2014.

Shareholder returns

Investors look to SSE for its solid, well-covered dividend and it appears this payout is not going to stop anytime soon.

Indeed, the company’s progressive dividend policy states that the payout will increase in line with inflation every year for the foreseeable future.

In addition, SSE’s dividend yield is currently 5.3% — larger than that of its peers in the multi-utilities sector, which currently offer an average dividend yield of 4.9%.

Valuation

Surprisingly, even though SSE offers a larger dividend yield than that of its peers, the company actually trades at the same valuation as the rest of its sector. SSE trades at a historic P/E ratio of 13.5, while its utility peers also trade at a historic P/E ratio of 13.5.

Foolish summary

So overall, based on SSE’s defensive nature, average valuation and larger-than-average dividend yield, I believe that SSE still looks safe to buy at 1,604p.

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In the meantime, please stay tuned for my next FTSE 100 verdict

> Rupert does not own any share mentioned in this article.

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