So no longer Scottish and Southern Energy following a name change to...... SSE.
But name change aside the company recently announced that it is on course to increase its dividend by 2% above inflation and still remain maintain within its established dividend cover range following planned capital expenditure of around £1.7bn (www.sharecast.com: SSE's dividend cover in its established range).
Should be good news for investors then with a forecast yield of 5.9% although I am a little concerned at the declared "established" dividend cover range when it has been on a 4 year downward trend to the most recently reported 1.5 times.
Will it continue to be squeezed I wonder?
But with 2010-11 operating cashflow per share of 185p comfortably above earnings per share of 112p and, last years net interest payments of £298m more than 4 times covered by profits of £1.477bn perhaps it is a case of needing to recognise the strengths of a utility and the stability of its earnings.
£1.7bn of capital spend represents around a 10% increase to existing liabilities reported at £16.249bn. So anything like a proportionate increase to the interest payments shouldn't put undue pressure on the company's cashflow.
The company's net profit after tax last year was £1.078bn which with the dividend accounting for around £702m (298,900,000m shares x 75p) leaves around £376m surplus. Possibly linked and on a positive note I see that cash balances increased by £216m last year to a reported £476m.
However, on the downside there is a potential flare up in the relationship between the "big six" energy companies and Ofgem following the regulator's release that recent price increases could result in each company increasing its margins per customer by up to £125.
Prior to this SSE had been trying to improve its customer perception by stating its intention to auction all of its generated energy supply (effectively making it available to new and smaller players and thereby increasing competition), and criticising the remainder of the big six for their abundant and confusing tariffs whilst reviewing its own.
The company has then gone on to be the first to suggest an issue with the regulators assumptions ie that it is a theoretical snapshot and fails to include capex.
Seemingly trying to differentiate itself the company might just be alienating itself from its peers and the regulator so ( I would suggest), needs to be very clear and genuine about its internal and industry "shake up" initiatives in order to win over sceptics of the energy supply industry.
As to its performance whilst in the portfolio.
Well, it might be off its 52 week highs of 1423p but, at 1352p, SSE currently represents around 2.5% of the portfolio. And, since the inception of the portfolio's index on the 1st Jan 2010, SSE has contributed with an individual share price gain of around 17.47% and a further 12.59% in dividends.
Which, as all dividends are kept in the portfolio, gives a total gain of 30.06% on the original investment at 1151p.
For reference, the year to date numbers are 10.37% share price and 6.12% in dividends, so that's a 16.49% gain in total against the 1225p price that the shares stood at on the 31 Dec 2010.
So a steady performing investment that still looks it will pay dividends then (if you can forgive the pun!).
Related articles:
- www.sharecast.com: SSE's dividend cover in its established range
- www.sharecast.com: SSE hits back at Ofgem margin claims
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