Today, National Grid (LSE: NG)(NYSE: NGG.US) is a power and energy distribution business with operations in the UK and US. This business is highly regulated. That makes it difficult for any other provider to step in and compete.
Along with a list of blue-chip customers, National Grid is also a top dividend payer. In the last five years, the dividend payout has increased in-line with earnings growth, at an average rate of 6.7% a year.
The shares have fallen by around 10% since reaching an all-time high in May.
This has pushed the expected dividend yield for the year up to 5.7%. 53p of earnings per share (EPS) is forecast for the year, putting the stock on a P/E of 14.0.
As a provider of utility services to homes in the UK, SSE (LSE: SSE) has a high degree of earnings visibility. The effect is that shareholders are rarely panicked into selling.
SSE has been paying an increasing dividend every year for more than 15 years. This year, the payout is expected to be raised by 4.3% to 87.8p. If delivered, then shareholders would get a 5.6% yield. Another increase is expected next year.
If earnings growth comes through as expected, then by 2015, dividend cover would be 1.4 times.
The 2015 P/E is just 12.4. That’s a surprising discount to the FTSE 100 for such a successful and solid high yield share.
Severn Trent (LSE: SVT) is a water and water treatment supplier. Of the three companies, it is Severn Trent that probably has the most reliable and predictable revenues and profits.
In May, Severn Trent received a 2,200p takeover bid. That’s around a 15% premium to today’s share price.
Severn Trent occupies a key part of the UK’s national infrastructure. It is likely that the bidders viewed the company as a long-term cash-cow.
Like many utilities, Severn Trent has large debts and only thin dividend cover. Provided that that profits continue to flow that should not be a problem — but regulatory changes are always a risk.
The shares are expected to yield 4.8% this year and trade on a P/E of 18.5.
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> David does not own shares in any of the above companies.