SSE must start generating higher returns if it is to maintain its impressive dividend growth, a leading energy sector analyst has warned.

As the energy giant announced it will enter a closed period on October 1, SSE pledged to continue its progressive dividend policy and will target increasing the interim dividend by at least RPI (retail prices index) inflation, currently 3.9 per cent.

This comes after the loss of 200,000 customers in its last financial year, and ahead of an expected fall in earnings per share as the group’s networks division feels the impact of a previously announced £150 million expected drop in profits for the first half.

Last year SSE paid out a full-year dividend of 91.3p, up 2.1 per cent. Its dividend yield, which is the percentage of the share price paid out in dividends, is currently 6.7 per cent.

This, said George Salmon, equity analyst at Hargreaves Lansdown, was an “undeniable attraction” for investors.

But even as he highlighted SSE’s “remarkable track record” for dividend payouts, which have increased every year since 1992, he warned that the group had to generate more profit to maintain its dividend target.

“With customer numbers falling and political pressure for an energy market upheaval growing, we feel in order to keep this impressive dividend growth record going in the years to come, the group must start generating higher returns,” he said.

Mr Salmon also drew attention to the cash flow at the business, noting: “Despite having spent around £10bn in the last seven years, mainly on renewable energy projects, net operating cash flows hasn’t moved a great deal.”

In its last full year accounts, SSE generated £2.6bn in cash from operations.

In response, an SSE spokesman said: “SSE’s first financial objective is to deliver annual increases in the dividend that at least keep pace with RPI inflation and it believes its strategic framework, opportunities for growth and effective financial management mean it can continue to deliver this in 2017/18 and beyond.”

He added: “A significant portion of SSE’s revenue stream now comes from its economically-regulated networks business and government-mandated renewable energy projects and SSE plans to invest around £6bn across the four years to 2020.”

In a statement to the stock exchange, SSE said its adjusted operating profit in the first half would be impacted by a £150m reduction in profit at its networks division.

SSE’s business, which generated £1.5 billion pre-tax profits on revenue of £29bn last year, is split into three divisions: networks, distribution and retail.

The largest of these is networks, which generates almost half of the group’s operating profit, followed by wholesale with 27 per cent, and retail with 23 per cent.

The networks profits, which will be announced with the group’s half-year results on November 8, will be impacted by a temporary decline in the money it earns from other energy companies for using its network of pylons, known as electricity transmission base revenue, and the sale of a stake in Scottish Gas Networks (SGN).

SSE is expected to report that adjusted operating profit in its wholesale and retail divisions will be higher than the first half of 2016.

But the impact of the profit reduction in networks will see earnings per share (EPS) come in between 30p and 32p, below the 34.2p recorded in the same period last year.

This will lead to dividend cover at the bottom of the 1.2 to 1.4 times range.

Gregor Alexander, finance director at SSE, said the group had been encouraged by what had been achieved in the first half, but added: “Energy provision is always complex, especially in the autumn and winter period.

“Our focus is on doing the right things and making the right decisions necessary to secure positive outcomes for customers and investors.”

The group also hailed the successful launch of its inaugural green bond.