What to do with SSE and upcoming dividend rebase?

[Gerry557]

After Dod asked for more investment treads.......

I hold some SSE shares which were doing OK, capital has risen and I have collected dividends along the journey together. Now all ISA wrapped.

Unfortunately things are going to change. The dividend is being rebased, from memory it's 90 odd pence and will drop to 60p with 5% rises in 2024 and 2025.

Its likely to be just over 3.25% yield if buying today. So what should I do?

Option 1 is nothing. Just keep collecting the lower dividends and wait for an increase in both the divi and hopefully the share price if the company gets stronger.

Option 2 is sell. The share price is likely to fall with the divi etc.

Option 3 is sell some. I have them split in two brokers so could sell one brokers worth. Either the bigger or smaller portion.

I can't think of option 4 but I'm open to suggestions.


Next if I sell what to do with the cash.

Option 1 is to hold it in the broker pending finding an alternative investment. One broker will give a low rate of interest whilst I wait. The other nothing. This will offset a bit of the lost dividend.

Option 2 withdraw the cash and stick it in a high interest account. Rates have been rising and a taxed account won't be an issue currently. This would provide more in interest than lost in the rebased dividend.

Option 3 spend it car, holiday, wine women and song. Unlikely the dividends were going to provide me with that so unless I get notification of 6m to live....

Option 4 Reinvest it but in what?


So musing on reinvesting. I hold UKW and Trig so could top them up and probably get a higher dividend return but possibly less capital return. I could find an investment trust. It's something I've considered in making it easier for those I leave behind when that 6m notice finally comes through.

Slowly move all individual shares into IT's as I get older so I don't have to be as involved as I get older and it might make things simpler for my spouse. I could pick a range of ITs that are fire and forget possibly.

Over to wise heads to make me ponder and discuss something financial

[DrFfybes]

It depends why you bought them, and why you hold them.

If they are part of a HYP, then if they no longer meet your criteria then sell.

If you were to look at them now as a fresh investment, would you still buy them? If not then sell at least some.

As the dividend rebasing is known about, that should be factored into the share price, so that is unlikely to change unless the dividend policy does. I don't know why the dii was rebased, but is that factor likely to go or not?

If it was me Id [robably hedge my bets and sell half

Paul

[daveh]

I first bought them in 2002 (in HSDL sharebuilder and initially had sharebuilder set to reinvest dividends which made for some interesting CGT calcs when I bed and ISA'd them). They are showing an average cost of 538p per share compared with a price of 1841p as of Friday, so a very good capital gain. Whilst owned they have paid 2.72x their cost back as dividend, most of which was invested in different shares. So for me they have done well.

But that doesn't answer the question of what to do with them. Even with the reduction in dividend they will still be paying me a significant dividend in cash terms, but if I sold some or all I could get a higher dividend elsewhere. They are at least cutting the dividend for a good reason - to invest more in future profits (they say). I hold them because I like where they are investing, in renewable energy generation, and they are a large company so can make significant investments in that area. One possibility would be to sell and buy one or more of the green infrastructure companies that will be at higher yields (such as UKW, I already own TRIG and GSF), but they are much smaller companies so they tend to buy smaller projects or small stakes in larger projects, they are not leading the development of large projects like SSE.

I plan to keep them at the moment, but am unlikely to add to them. I don't think the price will fall that much when the dividend is cut as it's not exactly new news, so I would expect it to be mostly in the price already.

[monabri]

1 June 2023
CEO sells £1.2m of shares
FD sells £856k
CCO sells £641k


source SimplyWallStreet https://simplywall.st/stocks/gb/utiliti ... s/dividend



They sold significant chunks of their holding in SSE. It might be that the CEO and FD are looking to retire and diversify their portfolio or pay a tax bill? After all, look at how long they've been in post. I'd keep an eye on Person Discharging Managerial Responsibilities (PDMR) trades, especially when it's the Financial director and the CEO.





I'm not a holder of SSE and don't follow them in any way. They look to be loss making. You might wish to review the financials or look at the SSE company thread on TLF for comments regarding recent trading.

The SimplyWallStreet valuation model uses discounted cash flow method (DCF) to value the share price. The calculation indicates that the shareprice is significantly overvalued (estimate of £11.65)

For HYPers, the free cash flow forecasts for the next 3 years are not encouraging.



If I held...I'd sell.
Would I buy now...no.

[kempiejon]

I hold SSE, had them a decade or so, the rebased dividend and lower yield I'm not really overly concerned about as part of a portfolio such things come along. I'll hold and at least from here the dividend is set to rise. Did SSE have inflation beating commitments to dividends?

As part of its five-year investment plan, SSE is targeting dividend increases in line with RPI inflation to March 2023, followed by a rebase to 60p in 2023/24 and at least 5% annual increases to March 2026.

https://www.sse.com/investors/shareholder-services/dividends-and-scrip-scheme/

Sure I could beat the new yield but I'm not one to chop and change on such occurrences, they do happen fairly regularly in my HYP and being lazy I prefer inactivity to reacting to each dividend change.

[88V8]

I hold some SSE shares which were doing OK, capital has risen and I have collected dividends along the journey together.....what should I do?

If you think Labour is going to get in, sell them as part of a strategy of selling all your utilities.

The proceeds.... at this stage of the interest rate cycle I shall probably move more into Prefs, but if that does not appeal then you might look at IAAG's regular list of high-yield Investment Trusts.

V8

[Dod101]

Well since my name was mentioned I will respond. I have held SSE for most of the last 30 years or so. I am an income investor but I also believe that it is important to try to grow the capital as that is from where income is derived. I was a bit concerned about the borrowings in SSE but I think it is a well run company (and does not have the problems of say the water utilities) so I will trust the management. The share price has been not just holding up but increasing a bit and I am happy with that. The dividend is being cut to help fund new investment and that is a healthy and positive position to be in. I will certainly retain my holding. As kempiejohn has said, most portfolios will be able to handle a cut like this without too much effect on the overall income.

There is of course an alternative view from monabri so the OP needs as always to decide for himself. However monabri comments that SSE looks to be loss making. The profit before exceptionals is £1.74 billion and most of the exceptionals are explained in Note 7 of the latest accounts when they tell us that 'volatility in global markets has resulted in an adverse mark to market remeasurement in commodity contracts (mostly power purchases) of £2,7 billion'. For the previous year the same item produced a gain of £2 billion. So the reported IFRS number is a loss but it appears to be on paper only at least at this stage and the nature of the business means that it is exposed to the high volatility experienced in current market conditions. Make of that what you will.

Cash flow is well able to cover the dividend.

Dod

[BullDog]

I sold out a few weeks ago and recycled the money into renewable energy stocks. Which is predominantly why I originally bought SSE, for the Dogger Bank and other renewables projects. Whilst I applaud SSE's investments, I don't want my dividend money being used to fund it. Hence why I sold.

[Gerry557]

It depends why you bought them, and why you hold them.

If they are part of a HYP, then if they no longer meet your criteria then sell.

If you were to look at them now as a fresh investment, would you still buy them? If not then sell at least some.

As the dividend rebasing is known about, that should be factored into the share price, so that is unlikely to change unless the dividend policy does. I don't know why the dii was rebased, but is that factor likely to go or not?

If it was me Id [robably hedge my bets and sell half

Paul

I bought for some growing income and a bit extra capital which it has done so far. Not necessarily HYP but close

Im not sure I would currently buy more though so it has me thinking.

[Gerry557]

I hold SSE, had them a decade or so, the rebased dividend and lower yield I'm not really overly concerned about as part of a portfolio such things come along. I'll hold and at least from here the dividend is set to rise. Did SSE have inflation beating commitments to dividends?

As part of its five-year investment plan, SSE is targeting dividend increases in line with RPI inflation to March 2023, followed by a rebase to 60p in 2023/24 and at least 5% annual increases to March 2026.

https://www.sse.com/investors/shareholder-services/dividends-and-scrip-scheme/

Sure I could beat the new yield but I'm not one to chop and change on such occurrences, they do happen fairly regularly in my HYP and being lazy I prefer inactivity to reacting to each dividend change.

The new policy is currently lower than inflation but its going to be halved by Rishie. It used to be the case of RPI +X% for some utilities then it went to CPI +X%

Assuming inflation does fall then it might keep up but on a rebased level.

Currently on 96.7p and dropping to 60p thats over a third dropped. A couple of 5%s wont dint that much.

[Gerry557]

Well since my name was mentioned I will respond. I have held SSE for most of the last 30 years or so. I am an income investor but I also believe that it is important to try to grow the capital as that is from where income is derived. I was a bit concerned about the borrowings in SSE but I think it is a well run company (and does not have the problems of say the water utilities) so I will trust the management. The share price has been not just holding up but increasing a bit and I am happy with that. The dividend is being cut to help fund new investment and that is a healthy and positive position to be in. I will certainly retain my holding. As kempiejohn has said, most portfolios will be able to handle a cut like this without too much effect on the overall income.

There is of course an alternative view from monabri so the OP needs as always to decide for himself. However monabri comments that SSE looks to be loss making. The profit before exceptionals is £1.74 billion and most of the exceptionals are explained in Note 7 of the latest accounts when they tell us that 'volatility in global markets has resulted in an adverse mark to market remeasurement in commodity contracts (mostly power purchases) of £2,7 billion'. For the previous year the same item produced a gain of £2 billion. So the reported IFRS number is a loss but it appears to be on paper only at least at this stage and the nature of the business means that it is exposed to the high volatility experienced in current market conditions. Make of that what you will.

Cash flow is well able to cover the dividend.

Dod

Yes Dod I thought Id drag you into this conversation but it is about finance this time.

This is another cut in the dividend though if my memory serves me right. I suppose they might keep doing this over an investment cycle. See projected performance and base a dividend through that period, cut and start again. The history prior looks much better so I can see why the longer you have held the better you may have done.

Im just wondering if this is about to change. I might have to dig out the accounts and watch the presentation. I think I missed the last one. I suppose it might rise a tad upto ex divi date and with a fee free deal it might be best to try and time a sale or as others have mentioned a part sale.

As they are with two brokers it might be a good time to tidy up a bit

Decisions Decisions

[Crazbe7]

I'll be selling as SSE part of an income portfolio but in no rush.

I already hold National Grid, Greencoat Wind and Trig so will keep some exposure to the Energy sector.

Unlikely to buy shares in another utility given the uncertainty across the whole sector.

Maybe time to add another house builder.

Crazbe 7

[88V8]

IUnlikely to buy shares in another utility given the uncertainty across the whole sector.

Quite... an extract from The Times.... Energy companies supplying about a third of British households do not meet Ofgem’s financial resilience standards, according to the regulator’s latest analysis. Ofgem has written to energy companies warning them that they must use an expected return to profitability this year to bolster their balance sheets before they consider paying dividends to shareholders.

Given the level of Tory interference in the sector, just imagine what Labour will do...

V8

[BullDog]

IUnlikely to buy shares in another utility given the uncertainty across the whole sector.

Quite... an extract from The Times.... Energy companies supplying about a third of British households do not meet Ofgem’s financial resilience standards, according to the regulator’s latest analysis. Ofgem has written to energy companies warning them that they must use an expected return to profitability this year to bolster their balance sheets before they consider paying dividends to shareholders.

Given the level of Tory interference in the sector, just imagine what Labour will do...

V8

When the idiot Milliband is in charge of the nation's energy supply it's going to be a challenge just keeping the lights lit. Hard to believe an incoming labour government can be even more incompetent than the incumbents. But I fear the worst.

[Gerry557]

IUnlikely to buy shares in another utility given the uncertainty across the whole sector.

Quite... an extract from The Times.... Energy companies supplying about a third of British households do not meet Ofgem’s financial resilience standards, according to the regulator’s latest analysis. Ofgem has written to energy companies warning them that they must use an expected return to profitability this year to bolster their balance sheets before they consider paying dividends to shareholders.

Given the level of Tory interference in the sector, just imagine what Labour will do...

V8

I read about that on Ofgems site. They didn't mention which companies didn't meet the requirements.

[daveh]

Quite... an extract from The Times.... Energy companies supplying about a third of British households do not meet Ofgem’s financial resilience standards, according to the regulator’s latest analysis. Ofgem has written to energy companies warning them that they must use an expected return to profitability this year to bolster their balance sheets before they consider paying dividends to shareholders.

Given the level of Tory interference in the sector, just imagine what Labour will do...

V8

I read about that on Ofgems site. They didn't mention which companies didn't meet the requirements.

Well it won't be SSE as they no longer have a retail supply arm, that was sold to OVO. SSE are now a generator and run the grid in northern Scotland.