The most successful dividend investors pick FTSE 100 stocks that they think will deliver over the long term.
They’re not just solely buying big dividend yields for the next 12 to 24 months. It’s the shares that look in good shape to deliver decent dividends over a longer time horizon — say a minimum of five years — that tend to make market-beating passive income.
With this in mind, here is a FTSE dividend stock on my watchlist today. This is why I plan to buy it when I have spare cash to invest.
Green machine
The global transition from fossil fuels to renewables and alternative fuel sources provides plenty of opportunity for UK share investors. SSE (LSE:SSE) is one company I think could enjoy huge profits as the green revolution rolls on.
The energy producer has put clean electricity front-and-centre of its growth strategy. It plans to produce 50TWh of renewable energy each year by 2030. That would represent a five-fold increase on 2022 levels.
And pressure to change planning rules around wind farms could make it easier for SSE to meet these goals. The National Infrastructure Commission, a body which advises the government on policy, has today urged fresh legislation that would “bring onshore wind back into the Nationally Significant Infrastructure Projects system as soon as possible.”
Why I’d buy SSE shares
The trouble with investing in renewable energy shares is that energy production can be volatile. It can plummet when the sun doesn’t shine or the wind fails to blow. SSE is no stranger to this problem and has issued profits warnings during recent calm periods.
Yet on balance I think buying the FTSE 100 share remains an attractive idea. The government is unlikely to row back on its Net Zero pledge as the climate crisis worsens. And businesses like this will provide an essential cog in helping the UK meet its energy needs.
Ignore the wobble
That said, buying SSE shares comes with a big caveat for dividend-hungry investors.
The dividend is likely to fall sharply in this financial year (to March 2024) from last year’s levels. In January the company said it plans to rebase the dividend to 60p per share. This would mark a huge drop from the full-year reward of 95.2p that City analysts are predicting for fiscal 2023.
SSE explained that its plans are needed to fund its “significant investment and growth plans.” Yet the firm has also said that it plans to raise annual dividends “by at least 5% per annum” over the next two financial years. If its green energy strategy pays off, I think it could produce strong and sustained dividend growth long into the future.
For the next two years SSE shares carry dividend yields of 3.3% and 3.5%. These are decent rather than spectacular and they sit below the FTSE 100 forward average. But as one of those long-term passive income investors I’d still buy the energy giant for my portfolio.
