Can Severn Trent plc, Pennon Group plc and United Utilities Group plc provide “Brexit shelter”?

Dave Sullivan thinks Severn Trent plc (LON: SVT), Pennon Group plc (LON: PNN) and United Utilities Group plc (LON: UU) could prove to be a good investment if the market is taken by surprise.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

With less than a month to go before the UK goes to the polls, the FTSE 100 has been remarkably strong. This is mainly due to a significant bounce in the price of oil and other commodities such as silver, gold, platinum and zinc – all of which have delivered double-digit returns so far this year.

Calm before the storm?

However, there are a further 18 trading days to go before the UK goes to the polls in what could prove to be a significant moment in history for the UK and its citizens.

As an investor I’m less worried about what political mud is being slung by the remain or leave campaigns, both of which are working hard at rubbishing the other’s case. The truth is that time will tell how the country votes and whichever way that is could have an impact on my investments – especially if the vote takes the market by surprise.

A recent case in point is the 2015 General election. Those of us with long memories will remember that sectors such as housebuilders and energy suppliers were out of favour due to fears of a mansion tax and an energy price freeze. However, when the Conservatives won their majority, these sectors rallied as market fears subsided. So for me the chance of Brexit is still real, even though not likely given recent polls.

Getting defensive

While I’m not suggesting that investors sit on the sidelines with 100% of their portfolios in cash, I think that it’s prudent to diversify one’s portfolio with a selection of more defensive shares. In my view none are more defensive than utility companies Severn Trent (LSE: SVT), Pennon Group (LSE: PNN) and United Utilities (LSE: UU) all of which offer investors a bank-like home for their money – albeit with a little more volatility rewarded with a far higher yield.

This week all three of these businesses reported good progress during the first year of ‘AMP6’ the Asset Management Plan, a regulatory period that covers the sector and spans 2015 to 2020.

Investors should be comforted to know that unlike many other businesses, the water industry is regulated. While this makes it difficult for the companies in the sector to raise prices in order to improve profits, it does give these businesses a competitive advantage as nobody is going to take their business from them.Customers are customers for life, or at least until they move to a different area.

As we can see from the chart, the shares tend to outperform the blue chip index in times of uncertainty and when the market is volatile. Of course the opposite is true when investors are in ‘risk-on’ mode.

Secure income stream on tap

Despite the significant debt pile carried by each company they can continue to pay out, and indeed grow, the dividend year after year. And while that growth isn’t spectacular, it’s only heading in one direction – up.

Indeed, turning to the 10-year chart – despite the ups and downs of the market it may come as a surprise to some that all of these boring, low-growth dividend payers have beaten the market. That’s better than the average private investor who usually underperforms the market.  

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Dave Sullivan has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Shot of a young Black woman doing some paperwork in a modern office
Investing Articles

With an 8% dividend yield, I think this undervalued FTSE stock is a no-brainer buy

With an impressive yield and good track record of payments, Mark David Hartley is considering adding this promising FTSE share…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

£9,500 in savings? Here’s how I’d try to turn that into £1,809 a month of passive income

Investing a relatively small amount into high-yielding stocks and reinvesting the dividends paid can generate significant passive income over time.

Read more »

Businesswoman analyses profitability of working company with digital virtual screen
Investing Articles

Dividend star Legal & General’s share price is still marked down, so should I buy more?

Legal & General’s share price looks very undervalued against its peers. But it pays an 8%+ dividend yield, and has…

Read more »

Investing Articles

Dividend shares: 1 FTSE 100 stock to consider buying for chunky shareholder income

This company’s ‘clean’ dividend record looks attractive to me and I’d consider buying some of the shares to hold long…

Read more »

Investing Articles

3 of my top FTSE 250 stocks to consider buying before April

Buying undervalued UK shares can be a great way to generate long-term wealth. Here, Royston Wild reveals a handful on…

Read more »

Ice cube tray filled with ice cubes and three loose ice cubes against dark wood.
Investing Articles

Just released: our 3 top income-focused stocks to buy before April [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Investing Articles

Is this the best chance to buy cheap FTSE 100 shares in a generation?

I want to buy shares when they're cheap, and sell... never, just keep taking the dividends. And the FTSE 100…

Read more »

Man putting his card into an ATM machine while his son sits in a stroller beside him.
Investing Articles

Could NatWest shares be 2024’s number one buy for passive income?

For those of us looking to earn some long-term passive income, how does NatWest's 7% dividend yield sound? It sounds…

Read more »