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MARKET COMMENT
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Investors searching for steady blue chip income ought to look at today's interim results from Severn Trent (LSE: SVT). The water utility stated that it would "enhance its dividend policy to the effect that... for the period up to March 2005, barring unforeseen circumstances, full year dividends per share would be a minimum of 45.9p". Even with the share price jumping 18.5p to 650p in early trade, a magnificent 7% dividend yield is still on the table. Although in line with City expectations, Severn Trent's six-month performance was not a spectacular affair. Pricing diktats from OFWAT continue to keep the lid on the group's traditional water supply business; profits here inched up 1% to £171m. Severn's non-regulated businesses fared even worse. Biffa, the UK's largest integrated waste management firm, revealed profits had fallen 4% to £34m. An absence of foot and mouth caused the shortfall. Meanwhile, Severn's environmental services operation reported profits down 13% to £16m. Tough trading in the US was to blame. Today's statement also showed earnings per share falling 6% to 30.2p and the dividend remaining static at 17.3p per share. On broker forecasts made before today's results, Severn's shares currently stand on a forward price to earnings ratio of 11.2 and offer a prospective dividend yield of 7.1%. Juicy. Although supplying water is as steady and predictable as it gets for long-term investors, Severn carries the usual risks associated with utilities: wafer thin dividend cover (1.2 times), high net debt (£2.4b) and the possibility of further regulatory interference. But as part of a collection of blue chips, Severn shares at current levels should not pose buy-and-forget investors too many portfolio problems.