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No deal Brexit is back! Could this FTSE 100 dividend share protect your wealth?

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We’ve been here time and again over the last 12 months but finally, with a European election drubbing in the offing and her revamped Withdrawal Agreement drawing ire from across the Conservative Party, the reign of Prime Minister Theresa May finally seems to be drawing to an ignominious close.

So what does this mean for investors? Well the imminent departure of May from Number 10 means that her policy to avoid a hard Brexit could be heading for the scrapheap too. The jockeying for position to succeed her has already begun and several leading contenders like Boris Johnson, Andrea Leadsom and Dominic Raab have already put on record their belief that Britain could (and possibly should) exit the European Union without a deal.

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This comes despite a galaxy of economists, business leaders and politicians all lining up to explain what a catastrophe a that would prove to be. Estimates by the government itself late last year suggested that such a withdrawal would damage the domestic economy for years to come, shaving 10.7% off British GDP over the space of 15 years.

Customer collapse

In times like this it may be tempting to hunker down and pick ‘safe’ shares like SSE (LSE: SSE). In uncertain political and economic times like these, a good way to protect your wealth is through buying into utilities providers, right? That is due to the indispensable nature of their services whatever the weather.

Certainly not, in my opinion at least. Britons are already really feeling the pinch because of Brexit, pushing the number of energy switchers to record highs. SSE itself lost another 570,000 electricity and gas accounts in the 12 months to March 2019 as customers went off in search of a better deal, and in the event of a hard Brexit, the pressure on household budgets would likely detonate, forcing even more to head in the direction of a cheaper supplier.

8% yields. So what?

Reflecting the growing pressure on its retail business, SSE has already been forced to admit defeat in its quest to keep raising shareholder dividends and, after forking out a 97.5p per share dividend for fiscal 2019, announced this week that it would be hacking the total reward back to 80p in the current period.

Sure, this figure still yields an enormous 8%, but I for one am still not tempted to jump in. The shocking erosion of its customer base and the pressure created by increased regulatory binds (like price caps) means that attempts to offload its battered Energy Services arm by next year could fail again, following on from the abandoned tie-up with Npower last year. And all the time, the threat of possible nationalisation hangs heavy in the air too.

Add in the colossal costs of keeping Britain powered up — adjusted investment and capital expenditure is expected to rise to £1.5bn this year — profits, and as a consequence dividends, threaten to continue diving at the FTSE 100 firm. So while the rising threat of a disorderly Brexit may boost demand for classic defensive shares, I believe that SSE is one that should be avoided at all costs.

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Royston Wild 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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