ii view: SSE keeps 2019 dividend but 2020 is under review

Given Covid-19, dividend payments could be delayed, with the amount for 2020 now uncertain.  

Trading update

• Expects full-year (FY) 2019 adjusted earnings per share to be at the lower end of forecast (83-88p)
• Still expects to pay a dividend of 80p per share for FY 2019
• FY 2020 dividend under review

Finance director Gregor Alexander said:

"In common with everyone else, our over-riding priority is supporting efforts to contain and delay the spread of Covid-19 - helping communities, customers and colleagues through this exceptionally difficult time.  

"Covid-19 is having an exceptional human, social and economic impact and dealing with that must be our over-riding priority.  Nevertheless, as a clean infrastructure company with first class assets and practical solutions to the critical problem of climate change and achievement of net zero emissions, we remain confident about the long-term opportunities for SSE."

ii round-up:

Power utility company SSE (LSE:SSE) today provided investors with a full-year 2019 trading update. 

Although Covid-19 had not impacted trading given its outbreak at the end of the company’s financial year, earnings per share were expected to come in at the lower end of management’s prior 83 to 88p range, given underperformance at its renewable energy business. 

The planned 80p per share dividend will be paid, although, given the full unknown hit of Covid-19 on the UK and Irish economies, the timing of the payment is under review.   

In line with a proposal from the UK’s financial authority and allowing for the virus’s impact on its auditors, full-year results are now expected in the second half of June instead of the usual mid-May period. 

SSE shares fell by more than 5% in UK morning trading, adding to a near 10% fall over 2019 and in tandem with a near 4% fall for the FTSE 100 at the end of another volatile week. 

Looking ahead, and allowing for the unknown economic disruption caused by the pandemic outbreak, the timing and exact amount of the 2020 dividend payment is now under review.  A payment of 80p per share plus inflation was previously outlined – equating to an estimated 82.2p per share. 

The Scotland-headquartered utility, which agreed to sell its retail business SSE Energy Services to Ovo Energy back in September, currently has £1.5 billion of committed banking facilities available. To cover debt maturities due later in the year, management will continue to monitor capital markets and look to issue new debt when appropriate. 

ii view:

Utility companies have historically proved attractive to income seeking investors. However, in recent years regulatory pressures have been building. Utilities have suffered a backlash from both wage squeezed consumers and increased political party attention. 

SSE took the decision to cut and rebase its dividend back in May 2018, hopefully achieving a better balance between customers, the group’s finances, infrastructure investment and shareholder returns.

Now the corona crisis is casting a shadow of uncertainty over SSE’s UK and Irish marketplaces.  

For investors, an intended full-year 2019 total payment of 80p per share still equates to a dividend yield of around 6%. But the 2019 election and political uncertainty have now been replaced with that caused by a health pandemic. A 2020 payment is still highly likely, although the exact amount and timing of the payment is now less certain. For now, and with many non-utility companies suspending their dividend payments, income seeking investors might want to stay put.    

Positives

• Becoming a clean-energy company
• A 2019/20, 80 pence per share div payment equates to an income yield of around 6%

Negatives

• Covid-19 is creating demand uncertainty across its markets
• Moody's previously downgraded SSE's credit rating 

The average rating of stock market analysts:

Weak buy