Interactive Investor

ii view: United Utilities ups the dividend

27th May 2021 15:44

Keith Bowman from interactive investor

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This water company sits on an income yield of more than 4%. We assess prospects. 

Full-year results to 31 March 

  • Revenue down 2.8% to £1.81 billion
  • Adjusted profit after tax down 21% to £383 million
  • Net debt down 1% to £7.31 billion
  • Final dividend of 28.83p per share
  • Total dividend for the year up 1.5% to 43.24p per share 

Chief executive Steve Mogford said:

"Our key priority throughout the Covid-19 pandemic has been to protect our colleagues while ensuring that customers continue to receive high quality water and wastewater services. Our transformation to an innovative digital utility has helped deliver another year-on-year improvement against key targets that our stakeholders value most, such as leakage, pollution and customer service.

"This great start to AMP7 provides a strong platform for us to deliver further good operational performance, play our full part in the economic recovery within the communities we serve and to continue to protect our natural environment".

ii round-up:

North West water company United Utilities (LSE:UU.) today declared a final dividend of 28.83p per share, bringing the total payment for the year to 43.24p per share. An increase of 1.5% over the previous year’s 42.6p per share and in line with its latest inflation linked regulatory dividend policy up to 2025.

As expected, revenue for the year to 31 March fell by 2.8%, hit by a combination of lower water bills under its new AMP7 regulatory policy and reduced industrial water consumption at the height of pandemic lockdowns. As a result, adjusted pre-tax profit fell by a fifth to £383 million, although again broadly matched analyst expectations. 

United Utilities shares were little changed in UK trading, having risen by nearly a third since pandemic induced market lows back in March 2020. Shares for fellow water company Severn Trent (LSE:SVT) are up by around a quarter over the same time. 

United reported no serious pollution incidents during the year along with its lowest ever level of leakage. Water supply interruptions more than halved. 

A total of £21 million was rewarded to the company over the year as it met or exceeded over 80% of its performance commitments. Outcome Delivery Incentives (ODIs) are paid by the regulator for meeting or exceeding performance targets. Management is targeting a similar level of ODI reward over the current year to March 2022. 

On the environment front, United is now a signatory to the United Nation's Race to Zero campaign and is targeting net zero carbon emissions by 2030. Its six carbon pledges include a commitment to having a completely 'green' fleet of vehicles by 2028 and restoring 1,000 hectares of peatland by 2030.

ii view:

United delivers essential water and wastewater services for household and business customers across the North West of England. Serving over seven million people, it maintains and operates thousands of kilometres of pipes and hundreds of treatment works. Technology and sensors are now used in its pipe network to spot potential leaks early and deal with them. 

For investors, tougher regulatory pricing policies remain an ongoing concern. The pandemic has also shown that other factors outside of the weather and rainfall can influence performance. But despite some impact in reducing revenues, with the average bill now 4% lower, the latest regulatory pricing regime has not long commenced.

Initial high uncertainties from the pandemic have eased, with water companies playing an increasingly important role between the use of water and the environment. In all, and with United shares sat on a historic and estimated dividend yield of over 4%, the water company’s appeal to income seekers remains undiminished. 

Positives: 

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

Negatives:

  • The weather can influence performance
  • Subject to regulatory changes

The average rating of stock market analysts:

Strong hold

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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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