The Motley Fool

I would dump the cash ISA and pick up SSE’s 7%+ dividend yield

Image source: Getty Images.

While the performance of SSE (LSE: SSE) has been very mixed over recent months, the FTSE 100 utility company could now offer an improving outlook. Its shares appear to offer a wide margin of safety, while its income return could boost its total return over the coming years.

This could mean that its risk/reward ratio is more appealing than investing through a cash ISA, where the potential returns available are around 1.5%. Alongside another FTSE 100 stock which released an update on Wednesday, the company could be worth buying for the long term.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Improving prospects

The other company in question is wealth manager St. James’s Place (LSE: STJ). Its annual results showed it has performed well at a time when the wider financial services sector has experienced an uncertain period.

For example, it reported a rise in gross inflows, increasing to £15.7bn from £14.6bn in the previous year. Its funds under management also increased to £95.6bn from £90.7bn a year ago. Meanwhile, underlying operating profit increased 9% to £1,002m, with underlying cash earnings per share rising by 10% to 58.7p.

Looking ahead, the stock is forecast to post a rise in earnings of 20% in the 2019 financial year. Despite this, it has a price-to-earnings growth (PEG) ratio of just 1.2, which suggests it may offer a wide margin of safety.

One reason for its low valuation is its share price decline of 16% in the last year. Although further falls in the stock price cannot be ruled out, St. James’s Place appears to have a sound strategy and could deliver a successful recovery over the medium term.

Changing business

While utility companies are usually desired for their relative stability, SSE is undergoing a period of intense change. The process of disposing of its domestic energy supply division has been somewhat long-winded, with plans to merge it with npower falling through. It’s now assessing its options, and is likely to make a decision on how to dispose what could be a challenging business over the medium term. For example, political risks are high, while price caps could signal lower levels of profitability are ahead for the sector.

As such, the company’s renewables division could become an increasingly desirable place to invest. SSE has a strong foothold in the green energy industry, and this could help to catalyse its financial and stock price performance in the long run.

In the meantime, the company has a dividend yield of around 7.1%. It also plans to raise dividends by at least as much as inflation over the next few years, which could become increasingly appealing to investors should the UK economy experience a challenging period. As such, after a disappointing year which has seen its share price come under pressure at times, now could be the right time to buy.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.