What You Were Buying Last Week: SSE

LONDON -- One of Warren Buffett's famous investing sayings is "be fearful when others are greedy and greedy only when others are fearful" -- or, in other words, sell when others are buying and buy when they're selling.

But we might expect Foolish investors to know that, and looking at what Fools have been buying recently might well provide us with some ideas for good investments.

So, in this series of articles, we're going to look at what customers of The Motley Fool ShareDealing Service have been buying in the past week or so, and what might have made them decide to do so.

Healthy yield
At the start of last week, SSE  (LSE: SSE  ) -- the utility company formerly known as Scottish & Southern Energy -- released its preliminary results for the year to the end of March 2013. In them, it revealed that its pre-tax profits had risen 5.6% year on year, to £1.4 billion, on the back of a 21% increase in U.K. household gas consumption (a result of the extended cold winter weather) and a 5% rise in electricity usage. And the increases were despite a disappointing near-1% fall in the number of SSE's energy customer accounts, now down to 9.47 million.

Income-seeking investors may well have had their interest in SSE sparked by its announcement that it was raising its dividend by 5.1%, to 84.2 pence per share, in line with the firm's strategic objective of "sustained real dividend growth". At SSE's current price of 1,553 pence, that's a healthy yield of around 5.5%.

So perhaps it was the growth in profits and the hike in dividend that put SSE in the seventh spot in the latest "Top 10 Buys" list*. But will it prove to have been a good investment?

On the downside, SSE is not without potential problems. Most notable recently has been the concern prompted by analysts at the investment firm Miton, who discovered that for several years SSE's dividends have been increasing faster than the funds available to pay for them, the shortfall being made up for by borrowing (and, to exacerbate concerns, a form of borrowing that is excluded from the firm's headline gearing). Recent buyers will need to have convinced themselves that SSE's avowed commitment to dividend growth is genuinely sustainable in the long term.

And Ian Marchant, SSE's CEO, is due to step down at the end of this month. Since Marchant's replacement will be his current deputy, Alistair Phillips-Davies, at least some continuity is likely to be preserved. But there will inevitably be worries about whether the new CEO will be able to steer SSE safely to further growth.

Of course, last week's buyers will also be focusing on the upsides of SSE. While its retail business may be subject to the limitations of a regulated market, people will always need to buy energy, and SSE has a great deal of expertise in working profitably within such restrictions. Better still, SSE's wholesale generation business is unregulated, and it's therefore able to make as much profit from that as the market allows.

There's also SSE's canny exploitation of the heavily government-subsidized "green energy" market. 25% of SSE's current generating capacity comes from "green" sources, and it has plans to raise that proportion to 40% over the next twelve years. While there's obviously no guarantee that subsidies will continue, SSE clearly hopes to make hay while that particular sun is shining.

Although SSE's current share price may be down 8% over the past couple of weeks, it's still up nearly 7% so far this year, and over 15% on this time last year. If recent sell-offs have been over-done, now could be a good time to buy into this dividend-obsessed company, and secure some capital growth from any recovery, along with the dividends.

Dividend winners
If you already own shares in SSE, you should definitely get hold of our newly updated special report -- it analyzes eight dividend-paying winners identified by ace fund manager Neil Woodford, who boasts an exceptional track record when it comes to selecting stock market stars.

The report, compiled by The Motley Fool's crack team of analysts, is totally free and comes with no further obligation. So download your copy now.

* based on aggregate data from The Motley Fool ShareDealing Service.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2473733, ~/Articles/ArticleHandler.aspx, 9/24/2016 10:01:13 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,261.45 -131.01 -0.71%
S&P 500 2,164.69 -12.49 -0.57%
NASD 5,305.75 -33.78 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/23/2016 12:06 PM
SSE $1538.94 Down -15.06 -0.97%
SSE CAPS Rating: No stars