ii view: United Utilities causes dividend panic

by Keith Bowman from interactive investor |

The dividend has grown, but Covid-19 is now casting a shadow over the level of future payments. 

Full-year results to 31 March 2020

  • Revenue up 2.2% to £1.86 billion
  • Underlying operating profit up 9% to £743.9 million
  • Final dividend payment of 28.4p per share
  • Total full-year dividend payment up 3.2% to 42.6p per share

Chief executive Steve Mogford said:

"The Covid-19 pandemic is an unprecedented challenge for our country. We offer the sector's widest range of assistance schemes to help those struggling to pay their bills and have increased the number of customers eligible for reduced tariffs. We have also made £3.5 million available immediately to those most in need, with £71 million committed to help customers over the next five years.

"The economic implications of Covid-19 will provide a challenging backdrop to the AMP7 regulatory period. United Utilities will continue to prioritise the implementation of its delivery plans, albeit reviewing and adapting these plans as necessary, and we fully intend to play our part in the recovery of the North West economy. It is, however, too early to predict the full impact of Covid-19 on inflation, the economy more generally and on our business, and we will review our dividend policy for AMP7 as a clearer picture of the post COVID-19 economic environment emerges."

ii round-up:

Water company United Utilities (LSE:UU.), which supplies both Manchester and Liverpool, is to review its dividend policy for the new pricing period given the unfolding corona crisis. 

United Utilities shares fell by 5% in early afternoon trading, the third-biggest faller in the FTSE 100 index.

The new pricing, or regulatory period AMP7 began on the 1 April and runs through to March 2025. A dividend policy for AMP7 was announced back in January and looks to targets a growth rate of inflation including housing costs (CPIH) each year through to 2025.

The total dividend for the year ended March 2020 was increased by 3.2% to 42.6p per share. The final dividend of 28.4p per share is payable in early August. 

Measures taken as a result of the Covid-19 pandemic have included temporary 20% pay cuts for directors, increasing the number of customers eligible for reduced tariffs, and offering assistance schemes to help those struggling to pay their bills. 

United has around £1.2 billion of available liquidity and borrowings deemed by credit ratings agency Moody’s as A3 and stable. 

ii view:

Water companies are generally considered by investors to be defensive in nature. Demand for water changes little no matter what the economic backdrop. Reliable customer bill payment income also makes for dependable dividends. 

A historical and estimated forward dividend yield of just over 4.5% (not guaranteed) continues to provide the major attraction for investors. Ultra-low interest rates and dividend suspensions for many other companies in order to conserve cash in a Covid-19 world, only add further to the dividend shine.

But risks have clearly risen for investors. An inability for many of its customers to work under the pandemic lockdown raises the potential for customers to default on their bills. A review of United’s dividend policy going forward has clearly heightened investor nerves. That said, given the degree of uncertainty currently, alternative attractive income paying opportunities appear to be few and far between, with United still looking more dividend dependable than most. 


  • Holds an A3 Moody’s credit rating
  • Attractive dividend payment (not guaranteed)


  • Dividend policy uncertainty going forward
  • Customer bill payment defaults could rise due to Covid-19

The average rating of stock market analysts:

Strong hold

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Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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