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With a 3% payout, this value stock could be set to soar to new heights

Renewable energies concept collage

One value stock I’m interested in is SSE (LSE: SSE). Here’s why.

Power provider

SSE is the third-largest supplier of gas and electricity in the UK. It serves approximately 7m customers through its brands including Southern Electric and Scottish Hydro Electric.

Let’s start by looking at SSE shares. As I write, they’re trading for 1,623p. At this time last year, they were trading for 1,846p, which is a 12% drop over a 12-month period.

Renewable energy prospects

Right now, SSE shares look good value for money on a price-to-earnings ratio of 10. This valuation is why I consider it to be a value stock.

In addition to this, SSE shares would boost my passive income with a dividend yield of 3.8%. This is higher than the FTSE 100 average. However, I do understand that dividends are never guaranteed.

Furthermore, SSE has experienced a great trading period of late, primarily due to rising gas prices. This could cool down as gas prices start to come down.

All of the above is promising. However, I’m most buoyed by SSE’s future prospects related to renewable energy initiatives. It is investing significant amounts of money into wind energy assets to generate clean energy. This is pleasing to see for me as a potential investor. The move away from traditional fossil fuels and towards cleaner alternatives is ramping up.

SSE’s largest wind farm project is set to be the largest offshore wind farm in the world by 2026. Technology is evolving which is only set to help SSE. For example, the original plan was to build 2,000 turbines but, with the evolution of technology, the farm could perform exactly the same with only 300 turbines. It is worth noting that nearly 30% of the UK’s power now originates from wind farms and this is only set to increase.

SSE’s investment and transition towards renewable energy could translate into future earnings and investor returns. With its shares trading at discount levels, now could be a good time for me to snap up some shares and watch the share price rise and levels of returns grow in the coming years.

A value stock I’d buy

I must note some risks that could hamper SSE. To start with, it has a fair bit of debt on its balance sheet, some of it linked to its investment in renewable energy projects. Debt is always risky, especially in a high-interest environment like now as it can be more costly to service and pay down. In addition to this, wind turbine farms are not cheap to buy, build, maintain, and operate. This is a significant challenge that could present financial and operational challenges that could impact investor sentiment and returns.

To conclude, I like the look of SSE shares and feel they could be an overlooked value stock. I’d be happy to add some shares to my holdings when I next have some cash to invest.

I believe renewable energy could be lucrative in the long term and businesses like SSE, that are investing in assets now, could experience great growth in the future.

The post With a 3% payout, this value stock could be set to soar to new heights appeared first on The Motley Fool UK.

Pound coins for sale — 51 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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Sumayya Mansoor 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.