Amidst the flurry of news surrounding SSE's strategic reshaping and dividend plan, a subtle yet potentially significant shift has emerged - a shift that could be a key indicator of future growth and a sign of significant confidence in the company's prospects. While much of the analyst focus has been on the planned demerger of the GB household retail business and the impact on the dividend, a less-noticed change in the Scrip dividend scheme may hold the key to understanding SSE's true growth ambitions.

SSE, a leading provider of energy and related services in the UK and Ireland, has a long-standing Scrip dividend scheme, offering shareholders the option to receive shares in place of their cash dividend payments. This scheme, averaging a 24% take-up over the past eight years, has been an attractive option for shareholders seeking to increase their stake in the company. However, with the planned Energy Services transaction looming, SSE has introduced a seemingly minor adjustment to the Scrip scheme that may speak volumes about its future direction.

The company has announced that if Scrip take-up exceeds 20% in conjunction with the full-year dividend, it will initiate share buybacks to limit the dilutive effect of excessive Scrip issuance. This move, while appearing mundane on the surface, could signal a fundamental shift in SSE's approach to managing shareholder value and growth.

Historically, companies use Scrip schemes to conserve cash, particularly during periods of high capital expenditure. High Scrip take-up, however, leads to share dilution, potentially eroding shareholder value. SSE's decision to implement buybacks to counter dilution suggests a heightened awareness of the importance of maintaining a balance between cash conservation and shareholder value.

This newfound emphasis on mitigating Scrip dilution implies a strong conviction in the sustainability of the company's core businesses - regulated networks and renewables - and their ability to generate sufficient cash flow to support both dividend payments and growth investments.

While the initial post-transaction dividend has been set at 80 pence per share, a level reflecting the changes within the SSE group, the company has boldly targeted annual full-year dividend growth to at least match RPI inflation for the three years to 2023. This ambitious target, coupled with the commitment to share buybacks, suggests that SSE is not simply aiming for stability but is positioning itself for future growth.

The company's capital expenditure plans further support this hypothesis. While the total capital and investment spend is expected to be around £6 billion over the next five years, representing a decrease from the previous five years, the pipeline of potential investments beyond the five-year plan is substantial. This includes opportunities in transmission, power generation, cost reduction measures, and both onshore and offshore wind projects.

By addressing Scrip dilution head-on, SSE is signaling that it is not afraid to utilize its balance sheet to capitalize on these opportunities, even if it means deviating from its historical reliance on the Scrip scheme to conserve cash. This newfound boldness indicates a confidence in the company's future earning potential and a commitment to delivering sustainable growth for shareholders.

The change in the Scrip scheme, therefore, may be more than just a technical adjustment. It could be a subtle yet powerful indicator of SSE's renewed focus on maximizing shareholder value and its ambition to seize emerging opportunities in the rapidly evolving energy sector.

While other analysts may be fixated on the immediate impact of the retail transaction on the dividend, this subtle shift in the Scrip scheme might be the real hidden gem in SSE's dividend tea leaves - a sign of a company poised for growth and confident in its ability to deliver long-term value for shareholders.

SSE Operating Profit Breakdown (2017/18)

The following table shows the operating profit breakdown of SSE's business segments, highlighting the core businesses of renewables and regulated networks.

Hypothetical Scrip Dividend Take-up vs. Share Buybacks

This chart illustrates a hypothetical scenario of SSE's Scrip dividend take-up exceeding 20% and the subsequent share buybacks implemented to counter dilution.

"Fun Fact: Did you know that SSE owns and operates the Glendoe Hydro Scheme, the UK's first large-scale pumped storage hydro scheme to be built in over 30 years? This innovative scheme, located in the Scottish Highlands, demonstrates SSE's commitment to investing in sustainable energy solutions."