After the SSE share price’s 20% jump, am I too late to buy?

As an old-school value, income and dividend investor, I’m always on the lookout for cheap UK stocks. Ideally, I look for stocks trading with low price-to-income ratios that offer market-beating dividends. And in early October, the share price of energy companies SSE (LSE: SSE) came up during one of my routines FTSE 100 Stock screen.

SSE share price rises 20%

At a 52-week low on October 13, SSE shares fell to 1,405p on the day. It is more than a quarter (-27.4%) below the 52-week high of 1,935.5p on 18 May 2022. Unfortunately, as is often the case, my attention was elsewhere, so I failed to spot this great buying opportunity. Ouch.

As I write this evening on the first trading day of the year, SSE shares are trading at 1,693.5p, down 19p to 2023. This values ​​the renewable energy generator in Perth at £18.3bn, making it a FTSE 100 stalwart.

Therefore, since the October low, the SSE share price has increased by more than five times (+20.5%). After a strong rally in the 12-week low, has this stock holding gone too far, too soon?

One problem for SSE is that the government has announced a windfall tax on ‘excess profits’ made by electricity generators. This levy applies to low-carbon power plants, which will hit SSE’s offshore wind farms. However, SSE makes most of its profits from thermal and gas storage, which is good news. Indeed, analysts are predicting SSE’s full-year operating profit of £1.9bn, compared to £1.2bn for the previous year.

SSE seems pretty cheap to me

At the current share price, SSE shares trade at a modest price-to-earnings ratio of 10.9, for a healthy earnings yield of 9.2%. What’s more, the dividend payout of nearly 5.3% per annum is covered about 1.75 times by earnings. This gives SSE one of the best returns on offer among FTSE 100 companies. However, I would not buy SSE shares today for two reasons.

First, the group has net debt exceeding 90% of market capitalization. In other words, a company’s debt pile is roughly equal to its equity value. Then again, I don’t see this as a big deal, as SSE operates in a highly regulated market with acute government oversight.

Second, I don’t see SSE’s share price taking off the lights at any point in the near future. Barring any unexpected surprises (such as a successful takeover bid or merger), I see this as a ‘slow and steady’ segment, rather than the next super stock.

With so many high yielding stocks in my family portfolio, I’ll look elsewhere for more excitement. That said, I expect this stock to be a solid (if not exciting) performer next year!