My best shares to buy now list is split into different categories. One of these categories is for dividend stocks I believe can make me a passive income. With that in mind, I’ll tell you why I like FTSE 100 energy supplier SSE (LSE:SSE) right now.
SSE is the third-largest supplier of electricity and gas in the UK. It supplies electricity and gas under the Southern Electric, Scottish Hydro Electric, SWALEC, and Atlantic brands. It currently services over 7m customers.
There are a few utility companies on my best shares to buy now list. Utility companies possess excellent defensive capabilities, as they are essential bills. The recent economic downturn may have forced consumers to cut back on luxuries. Bills such as mortgages, council tax, and utilities are essential, however.
In general, utilities businesses tend to be favourable income investments as utilities are in a generally stable industry. SSE can rely on long-term contracts with customers, usually a minimum of a year in most cases. This provides a healthy regular income stream.
Why is it on my best shares to buy now list?
SSE is classed as a blue-chip stock and I believe it carries less risk than a smaller business. Every investment has some level of risk, however, organisations as big as SSE have more mechanisms in place to prevent issues from arising. If problems do crop up, big companies are often better equipped to handle them more effectively.
SSE has long been considered one of the UK’s best blue-chip stocks. The FTSE 100 offers an average dividend yield of close to 3%. At the time of writing, SSE currently supports a dividend yield of just over 5%, which is very tempting. At current levels, SSE’s share price is nearly 15% lower than at this time last year, trading at 1428p per share as I write. It currently trades at 16.1 times earnings. I wouldn’t class that as cheap, but it’s not expensive either.
Apart from its size and operational reach, I really like SSE as it is diversifying its operations towards renewable energy. Renewable energy presents a big challenge for traditional energy firms as they commit to net carbon zero. SSE is developing the world’s largest offshore wind farm. In addition to this, it is involved in many other projects as part of joint ventures across Europe.
Risk and reward
Many firms across the FTSE 100 had to cut dividends when the market crashed due to the global pandemic.The risk with SSE is that it could cut its dividend, which it did recently to meet capital spending requirements. Furthermore, a high dividend yield might indicate a business in distress. The yield could be high because the company’s shares have fallen in response to financial troubles, and the struggling company hasn’t cut its dividend yet.
Management has reaffirmed its commitment to the dividend for at least the next year. In the near term, it looks sustainable. As with all of my best shares to buy now list, I look at the long term rather than short-term buy and sell strategies. SSE is firmly in the long term section of my list. Here is another FTSE 100 dividend stock I really like right now.
Jabran Khan 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.