Have £2,000 to invest? SSE is a FTSE 100 dividend stock I’d buy for the long term
Since interest rates are expected to remain at low levels, investors may be unable to obtain an income return from savings accounts which is above inflation over the medium term. As such, FTSE 100 dividend shares such as SSE(LSE: SSE) could become increasingly appealing. The stock has a dividend yield of around 8% in the current year, as well as a five-year plan to beat inflation when it comes to dividend growth.
Of course, there are other dividend growth shares which could be of interest to income-seeking investors. Reporting positive results on Monday was a small-cap stock which could have a bright dividend future, in my opinion.
Improving outlook
The company is Sanderson Group(LSE: SND), the specialist provider of digital technology solutions and innovative software. Its results for the year to 30 September were ahead of the prior year, as well as market expectations. As a result, its share price gained as much as 9% following their release, with investors seemingly increasingly optimistic about its financial prospects after a fall in its market value in recent months.
Revenue increased by 49% to £32.05m, while like-for-like (LFL) revenue was up 6.5% to £22.97m. Pre-contract recurring revenue now accounts for 55% of total revenue, which could provide better sales visibility over the medium term. And with operating profit moving 33% higher to £5.18m, the company’s financial performance has improved significantly.
With a dividend yield of 2.9%, Sanderson Group may not have the highest yield around at the present time. However, dividends are due to rise by 21% in the current year, while they’re covered over twice by profit. As such, strong dividend growth could be ahead, with the stock offering an improving income investing outlook.
Dividend potential
As mentioned, SSE currently has a dividend yield of over 8%. This has risen recently as a result of its falling share price, with uncertainty surrounding the company increasing. For example, its recent update suggested that the plan to merge its domestic energy supply business with npower, to create a larger business that could benefit from economies of scale, may not now take place. Further talks are expected, but the process of combining the two businesses appears to be more challenging than was previous expected.
SSE, though, continues to offer a strong track record of dividend growth, as well as plans to beat inflation when it comes to future dividend growth. With inflation at 2.4%, and seemingly likely to remain at elevated levels over the medium term, an ability to beat CPI in a variety of economic circumstances could become increasingly appealing to investors. That’s especially the case since a number of cyclical stocks in the FTSE 100 may struggle to generate improving profitability, should the world economy face a challenging period.
As such, although SSE may have experienced a difficult period and could lack the defensive appeal, which may investors assume it to have, its dividend investing prospects seem to be attractive in the long run.
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Peter Stephens owns shares of SSE. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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