Forget the State Pension, FTSE 100 dividend share SSE may be all you need

SSE plc (LON: SSE) could deliver impressive dividend growth versus the FTSE 100 (INDEXFTSE: UKX), which may reduce an investor’s dependence on the State Pension.

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With the State Pension amounting to little over £164 per week and the retirement age set to rise, FTSE 100 dividend shares could remain highly desirable for retirees. Fortunately, a number of shares in the index offer a mix of high income returns, as well as low valuations. Therefore, they could help to boost an individual’s retirement savings over the medium term.

One such company is SSE (LSE: SSE). It has a dividend yield of 7.8% at the present time, and could provide a margin of safety after its recent share price fall. Alongside a smaller stock which offers dividend growth potential following the release of results on Wednesday, it could be worth buying for the long term.

Solid performance

The dividend growth stock in question is design, manufacturer and supplier of kettle safety controls, Strix (LSE: KETL). It reported a solid first half performance, with revenue increasing by 1.5% to £42.9m. The company’s gross profit margin increased 70 basis points to 37.9%, with adjusted profit before tax falling by 1.9% as a result of higher net finance costs.

The company was able to maintain its global market share by volume at 38%. Its production efficiency improved by 6% as a result of continued automation. The global market has remained positive, with North America especially strong. Product development remains a key part of the company’s strategy, while it seeks to build on its extensive customer relationships across the value chain.

Looking ahead, Strix is expected to increase dividends per share by 10% in the next financial year. This puts it on a forward dividend yield of around 4.8%. With dividends due to be covered over twice by profit, its income investing potential appears to be impressive.

High return prospects

As mentioned, the SSE share price has fallen recently. The company was hit by difficult operating conditions in the first part of its financial year, with unfavourable weather causing it to revise its profit outlook. This has hurt investor sentiment and could provide an opportunity for income investors to buy the stock at a more appealing price level.

With the company’s shares trading on a price-to-earnings (P/E) ratio of around 11, they seem to offer a wide margin of safety. Certainly, there could be heightened volatility in the near term if weather conditions remain unfavourable. But from a long-term perspective, a 7.8% dividend yield that is covered 1.2 times by profit could be highly appealing compared to other FTSE 100 dividend shares.

With SSE set to undergo a period of change as it demerges its domestic energy supply division to create a joint venture with Npower, the overall prospects for the company’s investors could improve. At a time when the State Pension continues to be relatively disappointing, the company could help to boost an individual’s retirement savings over the long run. As such, it could be worth buying right now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of SSE. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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