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Forget the cash ISA. I’d consider the SSE share price and this 6% dividend stock instead

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Finally, some good news from the pub trade. The UK’s largest retailer and brewer Greene King (LSE: GNK) is up almost 6% this morning after publishing a 3.2% rise in statutory pre-tax profit to £127.7m, with group revenues up 1.9% to £1.05bn.

Cheers!

The FTSE 250 group hailed like-for-like sales momentum in its pub division, with 2.7% growth beating the market’s 1.1%. Today’s half-year report pinned this on “the ongoing benefits from our investment in value, service and quality, our strategic focus on four core brands, and… good weather and the World Cup.”

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Brewing & Brands revenue rose 7.5%, while Greene King also highlighted its “disciplined capital allocation & attractive property valuation.” CEO Rooney Anand said positive momentum has been sustained beyond the World Cup and the summer weather, adding that “we remain highly cash generative, meeting our debt repayment requirements, investing in our pubs and paying an attractive, sustainable dividend out of operating free cashflow.”

Festive cheer

It has also made progress on refinancing its Spirit debenture, which will reduce the cost of its debt and increase the strength and flexibility of it balance sheet. Anand said Christmas bookings are up on last year, despite ongoing uncertainty around the impact of Brexit on consumer confidence.

The interim dividend was maintained at 8.8p per share and Greene King now offers a forecast yield of 6.5%, with healthy cover of 1.9. Despite these positives, it trades at a great value price of 8.2 times earnings. Forward earnings growth looks sluggish though, and this is a challenging sector as consumers feel the pinch. That said, I’ll raise a glass to Greene King today. Probably Old Speckled Hen, ‘cos I’m partial to that.

Get the power

If you thought 6.5% was a juicy yield, take a look at electricity giant SSE (LSE: SSE). It currently offers a forecast 8.8%, one of the best on the FTSE 100, but this is less well supported, with cover now just 0.8. This means it cannot fund its dividends from regular earnings, and is looking to pay shareholders from disposals instead. The job got harder after pre-tax profits fell 41% to £246.4m in the six months to 30 September.

Instead of cutting the entering dividend, management lifted it by 3.2% to 29.3p a share, and still plans to recommend a full-year dividend of 97.57p, in line with its five-year dividend plan. It will be rebased at 82.01p once the Npower tie-up is sorted. But that still gives you a forecast yield of 7.3%, keeping pace with RPI for at least three years. 

Discount price

It’s the next five-year plan investors will be worried about, as SSE may struggle to justify its dividend generosity if profits continue to flag. It also has to fund the ongoing decarbonisation of the electricity system while building its new renewables business.

At least earnings are forecast to grow 30% in the year to 31 March 2020. The share price has fallen 18% in the last year, and SSE now trades at just 9 times earnings. At that price, it could still be a good long-term buy.

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harveyj has no position in any of the shares mentioned. 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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