SSE Article by P.Oakley

[monabri]

Article in the Investors Chronicle (today) by Phil Oakley.

googled "SSE – a lesson in dividend safety"

https://www.investorschronicle.co.uk/co ... nd-safety/

(probably locked so try googling it )

A few snippets


"Even with a heavy dividend cut expected next year, it is by no means certain that the worst is over for SSE. Political and regulatory threats hover over it, but given the depressed share price it’s not unreasonable to ask whether these have been overdone?"

"SSE’s problem in numbers – an increasingly unaffordable dividend payout" (Phil Oakley presents a table and makes a comment that the trend in the financials would indicate that the dividend was on borrowed time)

"An annual dividend of 80p a share will cost SSE £821m based on its current share count, and assuming no scrip dividend. This is much higher than the amount of free cash flow (FCF) being generated by the business"

"The company clearly faces a lot of threats, but its investment is now being targeted towards assets that should produce less volatile returns than its past spending. This might make the shares worth considering for adventurous income investors."

[Arborbridge]

All in all, it seems that Dod's assessment is about right and IC's conclusion: "This might make the shares worth considering for adventurous income investors" - might well rule out the more cautious HYPers.

I have to say, half way through the article, I was convined I should sell forthwith - but by the end I had thought better of it. Such is the wavering and pickering that goes on in my head when I read these things.


Arb.

[idpickering]

All in all, it seems that Dod's assessment is about right and IC's conclusion: "This might make the shares worth considering for adventurous income investors" - might well rule out the more cautious HYPers.

I have to say, half way through the article, I was convined I should sell forthwith - but by the end I had thought better of it. Such is the wavering and pickering that goes on in my head when I read these things.


Arb.

An interesting article for sure. For me though, I’m holding on, but am unlikely to top up any time soon. A cautious hold for me.

Ian.

[moorfield]

(probably locked so try googling it )

"An annual dividend of 80p a share will cost SSE £821m based on its current share count, and assuming no scrip dividend. This is much higher than the amount of free cash flow (FCF) being generated by the business"

I can't find it yet ... could anyone tell me the right search term to use ?

I'd highly recommend reading Oakley's book and various articles on free cash flow (FCF) particularly, they are a worthwhile investment of your time. He has form on this too - I have posted a link here before to a similar analysis of CLLN which called the rot long before its dividend cut.

I have to say, half way through the article, I was convined I should sell forthwith - but by the end I had thought better of it. Such is the wavering and pickering that goes on in my head when I read these things.

As ever I find it useful firstly to analyse a "what if" dividend cut in context of overall portfolio income. For example, a 50% cut of the SSE dividend would reduce my (projected) overall income this year by ~4% (at 19 holdings, I am more concentrated than most here I think), assuming every other holding pays the same dividend as last year and no cash is reinvested. Not unreasonable to expect that increases and top ups elsewhere might hold that in line with RPI, but not guaranteed of course.

So I'm cautious/sanguine about a dividend cut, not enough to dump now, but combined with the possibility of a Corbyn government certainly enough to simply stop topping up for the foreseeable future.

[monabri]

googled "SSE – a lesson in dividend safety"

Omit the quotes.

Second link after doing a search.

[monabri]

So I'm cautious/sanguine about a dividend cut, not enough to dump now, but combined with the possibility of a Corbyn government certainly enough to simply stop topping up for the foreseeable future.

I sold a while ago, not because of the effect of a Labour Government ( I reckon they'd address the railways first *...find it too difficult and then get diverted onto other things) but because of the cash flow. Unfortunately, I didn't apply the same logic to VOD.


* competition in the energy supply business is fierce, that's why quite a few of the new entrants are failing. Plus they have OFGEM on their back. It might be reasoned that the big 6 are losing customers because of competition. Renationalisation of the railways would be an easy political win, popular with the voters. How it would be done is another matter!

[Dod101]

Since the IC is not published on a Wednesday, presumably monabri found this on the website. I came to the same conclusion last year and sold my largish holding then. The iffy financials and the political threat from Corbyn and the regulator were my reasons. As is my wont I have not looked at it since.

Dod