3 Reasons Why SSE plc Is A Resounding Buy

centrica / sse

Today I am looking at why I believe SSE (LSE: SSE) (NASDAQOTH: SSEZY.US) is worthy of serious consideration by savvy stock selectors.

Price weakness heralds bargain hunt

Fears of intensified regulation of the electricity sector has driven share prices in Britain’s major power providers south in recent months. But many like myself view this as a prime buying opportunity — while politicians may be prepared to talk the talk when it comes to tackling rising household bills, they are likely to be more reluctant to walk the walk and risk the possibility of hampering investment in the power grid.

This leaves the listed utilities providers trading at extremely reasonable levels, even if prices have recovered ground in recent weeks. SSE itself is dealing on a P/E rating of 12 for the year concluding March 2014, and which drops to 11.6 and 11.5 for 2015 and 2016 respectively as earnings tick higher. Indeed, given the firm’s exceptional track record of annual earnings growth, I believe that this makes SSE an extremely dependable and attractive stock pick.

Renewable operations pack a punch

SSE’s interims last month confirmed the excellent progress being made in the field of renewable energy. Total output from hydroelectric, wind and biomass rung in at 6.1 terawatt hours (TWh) during January-September compared with 5.2TWh during the corresponding 2012 period.

The company advised in recent days, however, of its intention to pull the plug on constructing a new windfarm at Dalnessie as well as extending its Fairburn facility. Although SSE cited unviable costs as behind the decision, the firm said that it intends to divert financial resources towards developing its other wind assets in Scotland. I believe that the strength of its renewable pipeline should underpin future growth amid a wider switch from fossil fuel-based generation in Britain.

An electrifying income play

Fears concerning the possible introduction of profit limits on the utilities sector — possibly combined with restraint on the part of the companies in order to limit further public outcry — has been touted as a potential threat to future dividends. However, this is not a view shared by City analysts, who expect SSE to continue chucking out dividends at an electrifying rate.

The electricity play is expected to lift the annual payment 4% for 2014 to 87.6p per share, with rises of 3.8% and 4% anticipated in each of the following two years to 90.9p and 94.5p.

These predicted payment rises push a yield of 6.1% for this year to 6.4% and 6.6% in 2015 and 2016 correspondingly, smashing a forward average of 3.2% shared by the FTSE 100 and the gas, water and multiutilities sector. I bought SSE last year due to its exceptional income prospects and expect it to continue shelling out sizeable dividends well into the future.

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> Royston owns shares in SSE.