Utility shares have been taking a hit recently (particularly my holding in National Grid), probably because they are similar in nature to a fixed-income security, with their (usually) government-sanctioned rates of return and good dividend yields.
Unfortunately (or fortuitously, you might argue, if you are a 'real' buy-and-hold investor) I missed the price peak on National Grid. Moreover, I have read a couple of articles suggesting that SSE might struggle to maintain its dividend.
So when, on return from holiday, my SSE showed a nice capital gain - I pressed the sell button.
I have been holding SSE since January 2010. I reviewed prospects for SSE in May 2012, when I was broadly happy to continue holding, despite some mixed results - primarily because of the management's commitment to its dividend. For what it was worth, I identified SSE as one of my 'bomb-proof' dividend shares.
One Motley Fool article in February 2013 highlighted the cash flow problem facing the company and concluded: "What's more, revenue growth has slowed at SSE over the last couple of years, as has EPS growth. All of these factors could combine to put SSE's dividend growth policy under pressure over the next few years. Although I believe SSE's dividend is safe and unlikely to be cut, I do expect to see the dividend growth rate slow over the next two or three years."
However, another more recent (June 2013) Motley Fool article was more upbeat: "Although I believe SSE lacks a compelling earnings growth case in the meantime, the stock is a great dividend pick -- yields of 5.6% and 5.9% are expected this year and next -- and is worthy of serious consideration from income investors."
So, SSE is not necessarily a glaringly poor dividend share - just one to treat with a little caution.
The dividend yield is still above 5% but the dividend cover is slim at around 1.2, which is a warning. My own 'sell' indicator is based on the number of years of current income represented by the capital gain. I usually can sit on my hands until this reaches 5 years of income - but when it goes higher I think about selling. In the case of SSE my indicator stood at around 5.2, so I pressed the sell button, realising a gain of 34%.
[Sale price: £16.0125]
I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.
One Motley Fool article in February 2013 highlighted the cash flow problem facing the company and concluded: "What's more, revenue growth has slowed at SSE over the last couple of years, as has EPS growth. All of these factors could combine to put SSE's dividend growth policy under pressure over the next few years. Although I believe SSE's dividend is safe and unlikely to be cut, I do expect to see the dividend growth rate slow over the next two or three years."
However, another more recent (June 2013) Motley Fool article was more upbeat: "Although I believe SSE lacks a compelling earnings growth case in the meantime, the stock is a great dividend pick -- yields of 5.6% and 5.9% are expected this year and next -- and is worthy of serious consideration from income investors."
So, SSE is not necessarily a glaringly poor dividend share - just one to treat with a little caution.
The dividend yield is still above 5% but the dividend cover is slim at around 1.2, which is a warning. My own 'sell' indicator is based on the number of years of current income represented by the capital gain. I usually can sit on my hands until this reaches 5 years of income - but when it goes higher I think about selling. In the case of SSE my indicator stood at around 5.2, so I pressed the sell button, realising a gain of 34%.
[Sale price: £16.0125]
I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.
Yes, I agree SSEs dividend is probably not as secure as in previous years. I sold my holding in May - here's a link http://www.diyinvestoruk.blogspot.co.uk/2013/05/sse.html
ReplyDeleteI re-invested the proceeds into Unilever - lower but more secure dividend.