It’s been a strong few months for SSE (LSE: SSE) shares. The energy provider has beaten expectations left, right and centre, with the share price rising around 25% since October last year.
The good cheer was driven by new of its full-year EPS of 166p, up 74% on the year before. Higher gas prices were the main reason for the increase and more than offset disappointing wind revenues due to a lack of blustery conditions.
The big story here, though, is about the dividend. SSE made the decision to cut its 96.7p dividend (a 5.43% yield) to a 60p payment, which brings the yield down to 3.37%. As a pure income stock, it means it’s looking less attractive.
But the reason for the cut is due to the company’s vision: it wants to use the money for investment in renewable energy.
I must say I welcome this. It’s refreshing to see an energy company making an effort in this direction compared to, say, Shell, which (understandably) continues to milk the profits from oil as long as it can.
Wind turbines
SSE’s biggest renewables project right now is at Dogger Bank, a sandbank about 100 miles or so off the North East coast of England. By 2026, it will be home to the world’s largest offshore wind farm.
The company’s report on the project states that one sweep of one of its wind turbines is enough to power a home for two days. Another way of looking at it is that the original plan was to build 2000 turbines. Now it can generate the same power from only 300 turbines.
That shows how quickly this kind of technology is developing. Sure, wind power isn’t nearly enough to drive the country at present, but who knows where we’ll be in five, 10 or 15 years’ time?
Not only do I applaud the intent behind providing clean and secure energy, but more projects like this mean the future could be very bright for SSE, and of course, its share price.
This vision will require a lot of investment, and net debt did grow from £8.6bn to £8.9bn last year. Debt-to-equity seems high at 89%, but compared to other utility firms like National Grid (147%) and Centrica (288%), I’m not overly concerned.
Am I buying?
Since announcing the plan along with the dividend cut, the share price has stayed mostly flat. This tells me investors aren’t put off by the news but aren’t giddy with excitement either. Considering the big cut to dividends, I’d call this a good sign.
So, am I buying for my portfolio? Well, I like where SSE is heading and I’d have to say the portfolio is lacking in exposure to green energy. I expect I’ll open a position here in the near future.
