The Motley Fool

Looking for dividend income? I’d buy this 7%-yielding FTSE 100 stock right now

The search for dividend income has got harder, due to the Covid-19 pandemic. An incredible 48 FTSE 100 firms have now reduced or suspended shareholder payments, according to AJ Bell. The good news is that 47 have kept or increased theirs, including this top income stock.

The SSE (LSE: SSE) share price is up almost 9% this morning after it reported a 37% jump in adjusted operating profit to £1.49bn. Crucially, it stood by this year’s final dividend. SSE now yields 7.06%, making it one of the most attractive dividend income stocks on today’s market.

FTSE 100 listed SSE is primarily known as an energy company, but it also supplies phones, broadband and boiler cover to UK homes. It’s a relatively defensive business, and a good choice to underpin a balanced portfolio.

Top FTSE 100 defensive stock

But don’t expect much in the way of share price growth as there’s been precious little of that. SSE compensates by dishing up dividend income in large amounts. While dividends are never guaranteed, this is far more solid than most. Today’s payout is in line with management’s five-year dividend plan running to 2022/23.

The final dividend of 56p per share, paid on 18 September, lifts the full-year dividend to 80p per share. In 2018, SSE announced it was rebasing its dividend payout. So this year’s payout is lower than last year’s 97.50p. However, investors can now look forward to receiving a rising income.

Although adjusted profits jumped in the year to 31 March, reported operating profit fell 40% to £963.4m. That was largely due to a net exceptional pre-tax charge of £529m on discontinued operations. This was followed by January’s sale of its retail operations to OVO Energy, and closing its last coal-fired power station in March.

SSE also took a £209.7m hit on continuing operations, including £33.7m from bad debts, due to the pandemic. In 2020/21, the coronavirus is estimated to hit operating profit by between £150m and £250m, before mitigation.

Management has drawn up a comprehensive plan to sustain that all-important dividend income and create value in the business. This includes reducing planned outflows by at least £250m in 2020/21, mainly by cutting capital expenditure, and a proposed £2bn of disposals.

I’d buy this dividend income hero

SSE still has to invest around £7.5bn over the next five years, as it makes the transition to low carbon electricity production. It’s also investing in the new 103-turbine, 443MW Viking onshore wind farm near Shetland, approved today.

I’m glad to see chairman Richard Gillingwater emphasising the importance of sustaining shareholder payouts, stating that its dividend income funds “people’s pensions and savings, income which is now more important than ever.”

That’s exactly what investors want to hear. The SSE share price has recovered only slowly since the March crash, and still trades almost 18% lower than its peak in February. This reduced entry price makes SSE a buy for me. Judging by today’s share price action, I’m not the only one.

A top income share that boasts a reliably defensive business model… plus a current forecast dividend yield of 4.2% to boot!

With global markets in turmoil as the coronavirus pandemic tightens its grip, turning to shares to generate income isn’t as simple as it used to be…

As the realities of ‘life under lockdown’ begin to bite, many of the stock market’s ‘go-to’ high-yielding companies have either taken an axe to their dividend pay-outs… or worse, opted to suspended them altogether – for the near-term at least.

With so many blue-chip and mid-cap companies scrambling to hoard cash right now, where are we income investors to turn for decent yields?

Fortunately, The Motley Fool is here to help…

Our analyst has unearthed what he believes could be a very attractive option for income- seeking investors – a company that, in his view, boasts a ‘reliably defensive’ business model, combined with a current forecast dividend yield of 4.2% to boot!*

But here’s the really exciting part…

This business even has form in riding out this kind of situation, too… having previously increased sales and profits back in 2008 and 2009 when the world was gripped in the deepest economic crisis since the Great Depression.

*Please be aware that dividends are variable and not guaranteed.

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

Harvey Jones 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.