As a shareholder in SSE (LSE: SSE) (NASDAQOTH: SSEZY.US), I’m keen on the firm’s 14-year record of above-inflation dividend growth. However, I’m also a big fan of the wider SSE investment story, which I believe will support its long-term income potential.
Fossil fuels vs. renewables
SSE is the UK’s biggest generator of electricity from renewable energy, and currently has 3,230MW of renewable capacity, compared to 9,143MW of thermal (fossil fuel) capacity.
Although some investors remain concerned about the financial viability of renewables, gas and coal aren’t without risk, as input prices (coal and gas) can be volatile, resulting in unpredictable profits and the need for unpopular retail price increases.
In the long run, I believe that renewables will play a much greater part in the UK’s electricity supply, and SSE’s management seems to agree. The firm currently has renewable projects with a total generating capacity of 9,013MW, dwarfing the 1,098MW of thermal generating projects currently in the pipeline.
To complement its renewable strategy, SSE is currently working with Royal Dutch Shell to build the world’s first full-scale carbon capture and storage (CCS) facility, in Scotland. If this project is a success, it could open the way for low emission gas and coal-fired power stations.
Correcting past mistakes
Consumer mis-selling scandals seem to have become a regular part of life in recent years, and SSE was fined £10.5m in April, as a result mis-selling to domestic customers.
However, the firm has since completed the assessment of 98% of the 16,000 mis-selling cases raised by customers since April, and has also taken decisive action to restructure its retail sales division to avoid future problems.
Given its thorough response to these mistakes, which took place more than two years ago, I’m satisfied that SSE is unlikely to become a serial offender, and does treat its customers fairly.
The UK’s greatest dividend?
Of course, I’d be lying if I said that SSE’s dividend wasn’t one of the main reasons I am happy to hold the firm’s shares.
SSE shares currently yield 5.4%, and in its latest interim management statement, the firm confirmed that it is on course to deliver a full-year dividend increase that is above RPI inflation for the current year, and for the years after that.
Analyst’s consensus forecasts suggest that SSE shares offer a 5.6% prospective yield for 2013/14, 80% more than the FTSE 100 average of 3.1%.
A share to retire on?
SSE’s current 5.4% yield makes it a strong favourite with retirement investors.
