Investing in electrical energy producers could be a good way to supply passive revenue over time. Whereas there’s been some turbulence extra not too long ago, FTSE 100 share SSE (LSE:SSE) has — over the long run — confirmed to be one such sturdy dividend payer.

Its operations are important — in spite of everything, we’d like a gentle stream of electrical energy no matter no matter political, financial or social modifications come alongside. So these kinds of firms are likely to get pleasure from sturdy earnings and money stream visibility, the bedrock of any sturdy dividend coverage.

Inexperienced power specialists like SSE (LSE:SSE) aren’t resistant to uncommon income shocks although. Their backside traces can take surprising hits throughout unfavourable climate circumstances, equivalent to when calmer circumstances limit power era from its wind generators.

Pleasingly on this case, SSE’s much less uncovered to 1 know-how that another renewable power shares. Round two-thirds of its inexperienced portfolio is devoted to onshore and offshore wind, with the rest linked to hydro energy. The corporate additionally nonetheless produces electrical energy from gas-fired crops.

And its 12GW mission pipeline will diversify the corporate additional into areas equivalent to photo voltaic and battery storage.

I feel this FTSE 100 share has unimaginable long-term potential because the world strikes away from fossil fuels and in direction of renewable and nuclear. The panorama’s particularly supportive within the UK beneath present Web Zero plans.

Challenges and alternatives

That stated, there have been some challenges of late, with provide chain points, larger rates of interest, and higher development and operational prices impacting new capability additions.

SSE has needed to trim its personal funding plans in current instances. It now expects to spend £17.5bn within the 5 years to 2027, down £3bn from its earlier goal.

But the panorama might be about to enhance as falling inflation reduces rates of interest, and declining assist for renewables within the US doubtlessly eases provide chain points.

Within the close to time period, falling UK capability appears to be like set to spice up SSE by elevating subsidy costs on the subsequent contracts for distinction (CFD) auctions in September. These annual contests allocate subsidies for low-carbon electrical energy suppliers over a interval of years.

Dividend progress

SSE determined to rebase the annual dividend in monetary 2024 to reallocate money for its capability constructing technique. Whereas this provides substantial long-term progress potential, the chance of future payout reductions stays a menace.

That is particularly so on condition that the corporate expects debt to rise as capital expenditure retains growing. Its net-debt-to-EBITDA ratio’s tipped to rise, to three.5 – 4 instances within the medium time period. That’s up from 3.2 instances in the present day.

Encouragingly nevertheless, Metropolis analysts count on SSE’s dividends to maintain trending larger after progress resumed final 12 months:

Dealer projections are by no means set in stone. But when present forecasts are true, dividends on SSE shares are tipped to develop forward of the probably FTSE 100 common over the subsequent three years. This additionally means yields transfer above the UK blue-chip common of 3-4%.

Whereas it’s not with out threat, I feel SSE is a good dividend inventory to contemplate for a long-term passive revenue.