With this in mind, I’ve selected two stocks that may be worth a closer look — SSE plc (LSE: SSE) and Pennon Group plc (LSE: PNN)

Diversified

Energy company SSE has been chosen for its tempting dividend yield of 6% and its well-diversified business model.

Like many of its peers, SSE is somewhat exposed to volatility in wholesale energy prices from its electricity generation and supply businesses. To smooth out volatility, big suppliers such as SSE actively hedge against wholesale energy price changes.

But what makes SSE different is that the company also has a sizeable gas and electricity distributions network. To get a handle on the company, it’s best to break down the group’s earnings into three distinct operations. The regulated networks business is the biggest contributor to earnings, accounting for 51% of the group’s operating profits, followed by the retail supply business (25%), and lastly by its wholesale electricity generation business (24%).

SSE’s sizeable regulated networks business means that its earnings are generally more stable than it is for rivals Centrica and Drax, and this should make SSE relatively more attractive from an income investor’s perspective. That’s because SSE generates steady revenues from the levies and tariffs paid by the utility suppliers who need to use its distribution networks, and these revenues are generally unexposed to volatile commodity prices.

The dividend growth over the last three years of 2% annually isn’t very impressive, but that could soon change. As SSE has pledged to grow its dividends by at least RPI inflation annually, the outlook for higher inflation in the UK implies SSE is set to deliver faster dividend growth. Thanks to the fall in the value of sterling since the Brexit vote, the Retail Prices Index (RPI) has already risen to 2.5% in December — looking forward, city analysts expect RPI inflation to peak above 3% this year.

Safety

Pennon Group is a solid choice for safety and yield. The current 33.58p per share payout offers potential investors an above-average yield of 4.2%. Although that’s not as high-yielding as SSE, Pennon seems to have a lower risk profile.

As a water company Ofwat, the water regulator, conducts a price review to set out what the company must commit to deliver during the period and the price it may charge customers. This gives them a high degree of predictability over future cash flows, which allows it to plan ahead for up to five years in advance.

But unlike peers such as Severn Trent and United Utilities, Pennon also has a waste business. The company’s recent decision to invest another £252m in another energy recovery facility shows that there are good opportunities for Pennon to invest in the waste business. Once this spending splurge pays off, the company could be in a stronger position to return more cash to shareholders.

The post 2 utility stocks for retirement income appeared first on The Twelfth Magpie.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Aberdeen focuses its investments on emerging markets with a big chunk going towards Asia. The Chinese slowdown and its effects throughout the region have led to a serious run on investors’ cash, with Aberdeen reporting net capital outflows quarter after quarter — £9.1bn in the three months to December 2015 alone, as the firm said that “flows outlook remains difficult and market volatility continues“.

But Chinese sentiment is improving, and earnings for Aberdeen are expected to bottom out this year. And if the firm can keep that dividend going (albeit not quite covered by forecast 2016 EPS), then that would be a good sign that the future is looking rosier and the shares could be set for a rerating over the next year or so.

Hotting up

After a couple of years of pre-tax losses, British Gas owner Centrica (LSE: CNA) looks set to swing back to profit this year after cost-cutting and reduced capital expenditure have started delivering results. The firm has had to cut its dividend, from 17p per share in 2013 to 12p last year. But over the longer term Centrica has a progressive policy, and analysts are expecting a return to modest dividend rises which would provide yields of 5.1% and 5.2% this year and next, respectively.

At around 1.25 times, cover wouldn’t be back up to Centrica’s longer-term level, but if the expected bottoming of earnings this year should come off, we should see cover heading back in the right direction from 2017 onward.

Operating cash flow is improving and is forecast to exceed £2bn in 2016, and the company has reduced its net debt to £4.4bn in the first quarter (from a little over £4.7bn at the end of December). I see the long-term portents as good, and now could be a great time to lock in some healthy future dividend growth.

Safe as they come

National Grid (LSE: NG) has been pretty much a byword for dependable progressive dividends, and even with earnings per share having been a little erratic over the past five years, the annual cash handout has been growing bit by bit. At interim time, reported in November, the firm told us it was “well positioned to deliver strong returns and a sustainable, growing dividend“.

A decent 12-month share price rise of 12%, to 970p, has dropped the forecast yield for this year a little, but at 4.5% it’s still significantly better than the FTSE’s long-term average. And if that’s not enough, the attraction of National Grid’s reliable dividends has led to a 66% share price rise in five years, while the FTSE has struggled to keep its head above zero.

Above average dividends plus above average growth — who doesn’t want some of that?

The post Do Aberdeen Asset Management plc (6.3%), Centrica PLC (5.1%) & National Grid plc (4.5%) Offer Unmissable Dividends? appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Aberdeen Asset Management and Centrica. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Super yield

Look at SSE (LSE: SSE), which is a big favourite among high-yield investors. It’s been offering up dividend yields of close to 6% for years, and for the year to March 2016 there’s a 6.5% yield forecast, with similar on the cards for the next two years — a share price that has dropped 16% since May last year to 1,433p has helped boost that percentage.

The problem is, there’s a 9% fall in earnings per share predicted for this year, followed by zero change for each of the next two years. In 2015 we saw dividend cover of 1.4 times, but that would drop to just 1.25 times on this year’s forecasts, and a shade less by 2018.

In its January trading statement, SSE reiterated its intention of “targeting an increase in the full-year dividend for 2016/17 of at least RPI inflation, with annual increases thereafter of at least RPI inflation“.

So we’re probably safe for this year and next, but if earnings don’t start picking up again, it won’t be sustainable for ever.

More erratic

Dividends at gas supplier Centrica (LSE: CNA) have been less stable, with a couple of years of falling earnings leading to a 21% dividend cut in 2014 followed by another 11% in 2015. There’s a further 9% decline in earnings currently forecast for the year to December 2016, yet the City folk are expecting the dividend to be lifted a little to yield 5.8% on today’s 226p shares — and with only a 1% EPS gain penciled in for 2017, they’re expecting a further dividend boost to 6%.

That would give us dividend cover of around 1.3 times this year, dropping to 1.26 times next. Again, I find that cutting it a bit fine, and Centrica has made less of a commitment to dividend growth having merely said in February’s full-year report that its progressive dividend policy is “tied to confidence in underlying operating cash flow“.

Again, probably safe, but by no means certain.

The safest?

The National Grid (LSE: NG) share price has bucked the trend, being the only one that has gained in the past 12 months — albeit a modest 8% to 947p. The potential dividend yield is the lowest of the three, with a relatively modest 4.5% (still way ahead of the FTSE 100 average) expected for the year to March 2016, blipping up a little to 4.7% by 2018.

But the nice thing is that National Grid’s dividend should be a bit better covered than the other two, with the 5% EPS rise forecast for this year taking it to 1.4 times. Admittedly, the next two years with a suggested EPS rise of only 2% in total would drop that cover to 1.35 times, but that would still be ahead of the pack.

National Grid’s dividend is probably the safest of the three, but the lesson that we should not be complacent is a welcome one.

The post How Safe Are Dividends At SSE PLC (6.5%), Centrica PLC (5.8%) And National Grid plc (4.5%)? appeared first on The Twelfth Magpie.

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• Down 15%! Is National Grid’s share price really a bargain right now?
• 3 British dividend stocks to consider for passive income this summer
• How UK shares could build a £339,849 ISA
• How much could a £25,362 Stocks and Shares ISA be worth in 10 years?
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Barclays and Centrica. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.