It feels as though whenever I catch the BBC news in the evening, there is a story criticising the billing practices of utility companies such as SSE (LSE: SSE) (NASDAQOTH: SSEZY.US). The news item is almost wholly biased towards the viewpoint of the consumer, who continually complains about the cost of electricity and other utilities as well as the lack of transparency in the pricing structure.
Indeed, you would be hard-pressed to deduce from the news stories that many pensioners and pension funds are heavily invested in utilities such as SSE. What SSE takes with one hand, it gives back with the other.
Furthermore, the BBC often forgets to mention that the regulator, Ofgem, sets the pricing structure and framework within which utilities must operate. Onerous capital expenditure requirements set by the government to improve the UK’s green credentials mean that prices are likely to only go one way in future.
This is not the fault of the utility companies; they exist to serve their shareholders — all of whom are only too happy to receive an impressive yield of 5% when interest rates are at historic lows. Indeed, such a yield puts SSE at number 6 on the list of highest-yielding FTSE 100 stocks.
In addition, another major attraction of SSE is its commitment to match its dividend per share growth to RPI in future. This means that if quantitative easing and low interest rates do cause higher inflation in future years, shareholders will see the real value of their income protected.
Of course, for such a commitment, new investors must pay a slight premium to the market. SSE’s price-to-earnings (P/E) ratio is currently 14.6, which is slightly above the FTSE 1000 (13.7) but in line with the utilities industry group (14.5). For me, such a price is worth paying despite what the BBC’s ‘holier-than-thou’ news team may think of it.
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> Peter does not own shares in SSE.
