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Should I Buy SSE PLC (SSE) for My ISA?

LONDON — ISA season is upon us again! If you haven’t yet used this year’s £11,280 allowance for a stocks and shares ISA, you only have a short time left before the April 5 deadline.

Remember, you don’t pay any tax on share gains held within an ISA or any additional income tax on dividends — giving a significant boost to your investment returns. (For more information about ISAs, click here.)

Today, I’m going to tell you why I believe utility SSE PLC (LON:SSE) is a bright choice for your stocks and shares ISA.

SSE PLC (LON:SSE)Name of the game
Scottish & Southern (LSE:SSE) Energy has shortened its name to SSE PLC (LON:SSE) since the last ISA season, but don’t let that worry you. The name of the game with the company is still dividends.

SSE describes its “key financial objective” as “the delivery of annual above-inflation increases in the dividend paid to shareholders.” This focus means SSE is now one of just five long-serving FTSE 100 companies to have delivered above-inflation dividend increases every year since 1998, the year the company was formed.

Why does SSE PLC (LON:SSE) concentrate so resolutely on dividends? Among other reasons, “receiving and reinvesting dividends is the biggest source of an investor’s return over the long term.”

As I mentioned earlier, canny investors who shelter the shares in an ISA will pay neither additional income tax on the dividends, nor tax on the long-term capital gains those reinvested dividends are likely to produce.

Change at the top
At the start of this year, SSE PLC (LON:SSE)’s chief executive, Ian Marchant, decided that after leading the company for ten years the time had come to step down. It’s always a bit of a jittery time when a boss who’s been as successful as Marchant decides to move on.

However, I don’t believe the risks of succession in a regulated business are as great as in other industries. Furthermore, the new leader, Alistair Phillips-Davies, already knows SSE inside out: he’s the current deputy chief executive and has been with the company since 1997. Just for good measure, there’s further continuity in the shape of finance director Gregor Alexander, who’s been with the business even longer — since 1990.

Dividends and more dividends
I expect it to be business as usual at SSE PLC (LON:SSE) — and that means dividends and more dividends.

The board has already indicated, in an interim management statement during January, that it expects to announce a full-year dividend of around 84 pence per share when the firm’s annual results are published during May. The forecast payout meets SSE’s 2012-13 target of “at least 2% more than RPI inflation” and shareholders can look forward to more ahead-of-inflation increases in the years to come.

The 84 pence per share dividend for the current year gives an income of 5.8% at a share price of 1,450 pence — which looks pretty sparky to me with the expectation of further annual growth ahead of inflation in the future.

The article Should I Buy SSE for My ISA? originally appeared on Fool.com.

G.A. Chester has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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