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Forget cash! I’d buy this FTSE 100 stock in an ISA for its 6% yield

Harvey Jones
·3-min read
Various denominations of notes in a pile
Various denominations of notes in a pile

The SSE (LSE: SSE) share price has been relatively stable during this year’s stock market storms, highlighting the benefits of holding defensive FTSE 100 stocks in your portfolio. Better still, the power giant has stood by its dividends when so many have axed theirs, giving investors a reliable income stream.

Too many people are leaving large sums of money in cash right now, despite getting a near zero return. With inflation at 0.7%, this is a losing strategy. I would much rather put my money into dividend-paying FTSE 100 stocks like SSE.

The power group’s half-year report, published today, only confirms my view that this is a solid alternative to cash. Shares will always be more risky than leaving money in the bank, but this FTSE 100 stock is at the safer end of the spectrum. I say that even though SSE has just reported a 15% drop in first-half adjusted operating profit to £418.3m.

Forget cash, choose dividends

The drop was mostly down to a hefty £115m coronavirus hit, due to lower demand, rising bad debts and ineffective hedging. There is more to come but it looks manageable to me, with full-year Covid-19 costs expected to be towards the middle of the £150–£250m range set out in June.

SSE plans to position itself as the pre-eminent green energy company in the UK and Ireland, as a key part of its £7.5bn investment plan. It is now pushing ahead with the first two phases of the world’s largest offshore wind farm at Dogger Bank, and plans to treble its renewable output by 2030.

This FTSE 100 stock could ultimately become a green powerhouse. It plans to invest £7.5bn over the five years to March 2025, and has already raised more than £2bn towards that through its disposals programme. Management reckons the remainder is fully financeable” within its debt targets.

SSE may not deliver share price growth but when it comes to income, this is still one of the best FTSE 100 dividend stocks. Last year, management cut its dividend from 97.5p to 80p, but it still yields around 6%. Cover is thin at 0.9 but management is looking to increase the payment steadily in the years ahead. That should give investors a rising income as well. I would buy it inside a Stocks and Shares ISA, for tax-free returns.

I’d buy this FTSE 100 stock for income

With savings rates plunging to record lows, this level of income is hard to ignore. Especially given that it comes from a company whose share price has been steady for years, and has largely recovered from this year’s crash.

SSE looks fairly priced to me, trading at 16.1 times earnings. With interest rates set to stay low for years, it looks a great long-term buy and hold. Buying FTSE 100 stocks like this one looks far more tempting to me than leaving money in cash.

The post Forget cash! I’d buy this FTSE 100 stock in an ISA for its 6% yield appeared first on The Motley Fool UK.

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Harvey Jones has no position in any of the shares mentioned. 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.

Motley Fool UK 2020