What You Were Buying Last Week: SSE PLC (SSE)

LONDON — One of Warren Buffett’s famous investing sayings is “be fearful when others are greedy and greedy only when others are fearful” –– or, in other words, sell when others are buying and buy when they’re selling.

But we might expect Foolish investors to know that, and looking at what Fools have been buying recently might well provide us with some ideas for good investments.

So, in this series of articles, we’re going to look at what customers of The Motley Fool ShareDealing Service have been buying in the past week or so, and what might have made them decide to do so.

Healthy yield
At the start of last week, SSE PLC (LON:SSE) — the utility company formerly known as Scottish & Southern  Energy — released its preliminary results for the year to the end of March 2013. In them, it revealed that its pre-tax profits had risen 5.6% year on year, to £1.4 billion, on the back of a 21% increase in U.K. household gas consumption (a result of the extended cold winter weather) and a 5% rise in electricity usage. And the increases were despite a disappointing near-1% fall in the number of SSE’s energy customer accounts, now down to 9.47 million.

Income-seeking investors may well have had their interest in SSE sparked by its announcement that it was raising its dividend by 5.1%, to 84.2 pence per share, in line with the firm’s strategic objective of “sustained real dividend growth”. At SSE’s current price of 1,553 pence, that’s a healthy yield of around 5.5%.

So perhaps it was the growth in profits and the hike in dividend that put SSE PLC (LON:SSE) in the seventh spot in the latest “Top 10 Buys” list*. But will it prove to have been a good investment?

On the downside, SSE is not without potential problems. Most notable recently has been the concern prompted by analysts at the investment firm Miton, who discovered that for several years SSE PLC (LON:SSE)’s dividends have been increasing faster than the funds available to pay for them, the shortfall being made up for by borrowing (and, to exacerbate concerns, a form of borrowing that is excluded from the firm’s headline gearing). Recent buyers will need to have convinced themselves that SSE’s avowed commitment to dividend growth is genuinely sustainable in the long term.