SSE: A FTSE 100 Dividend-Raising Star

LONDON -- In an outcome that's tough on investors, the FTSE 100 (UKX) has failed to deliver a rising dividend payout over the last few years.

Just look at the iShares FTSE 100 ETF (LSE: ISF.L), for example. This is an exchange-traded fund that tracks the benchmark index, and we can see the aggregate payment from Britain's top 100 companies has yet to regain its pre-recession peak:

But some companies within London's premier index have performed well on dividends, despite these austere times, and this series aims to seek them out. One such name is SSE (LSE: SSE.L).

The big question is can the company's dividend continue to outperform its index? Let's take a closer look.

SSE is the third largest supplier of electricity and gas in the U.K. With the shares at 1,416 pence, the market cap is 13.6 billion pounds. This table summarizes the firm's recent financial record:

So, the dividend has increased by 32% during the last five years -- equivalent to a 7.3% compound annual growth rate.

SSE operates mainly in the U.K. and Ireland. The company runs around 130,000km of overhead electricity lines and underground cables, delivering power to around 3.7 million consumers. In the gas arm of its operations, the company owns a 50% share of Scotia Gas Networks, which has around 75,000km of pipelines delivering gas to around 5.7 million consumers. SSE also claims to be the U.K.'s fourth largest telecoms network company, and to be the U.K.'s second largest mechanical and electrical contracting business.

In its upstream business, SSE has over 11,800 megawatts of capacity for generating electricity in power stations, hydroelectric schemes and wind farms, and it owns the U.K.'s largest onshore gas storage facility.

In common with other energy suppliers, SSE found 2011 difficult as rising wholesale prices and volatile demand squeezed profits. Investors might get a better idea of how 2012 is going with the interim results, due on 14 November.

SSE's dividend growth score
I analyse four different features of a company to judge whether its dividend can continue to rise:

1. Dividend cover: Adjusted earnings covered the last dividend around 1.4 times.  3/5
2. Net cash or debt: At the last count, net gearing was around 132%.  3/5
3. Cash flow: Good profit support from cash flow, but both have been bumpy.  4/5
4. Outlook and recent trading: Satisfactory recent trading and a cautious outlook.  3/5

Overall, I score SSE 13 out of 20, which encourages me to believe the firm's dividend can continue to outpace dividends from the FTSE 100.

Foolish summary
Generally, SSE enjoys strong cash flows, and that helps it manage its debt load. The outlook is cautious as difficult trading conditions continue.

Right now, the forecast full-year dividend is 88.37 pence per share, which supports a possible income of 6.2%. That looks attractive to me.

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