Is United Utilities Group PLC A Super Income Stock?

Does United Utilities Group PLC (LON: UU) have the right credentials to be classed as a very attractive income play?

| 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

While shares in United Utilities (LSE: UU) (NASDAQOTH: UUGRY.US) have risen by 60% over the last five years, their performance has lagged that of the FTSE 100, which is up 73% over the same time period. Of course, defensive shares often lag during bull markets, so it is perhaps of little surprise to see United Utilities behind on a relative basis. Does this underperformance mean, however, that United Utilities is now a super income stock?

Strong Income Play

With a yield of 4.4%, United Utilities certainly looks like an attractive income play. This yield not only beats that of the FTSE 100 (which has a yield of around 3.5%) but it is also considerably ahead of inflation and the best that high-street bank accounts can offer.

water-256349_640Furthermore, United Utilities is forecast to increase dividends per share roughly in-line with inflation over the next two years. While an annualised increase in dividends per share of 1.8% over the next two years may not get pulses racing, it is close to current levels of inflation and should ensure that the current yield remains attractive over the medium term.

In addition, United Utilities seems to be adopting a sensible strategy regarding the proportion of earnings that it pays out as a dividend. The dividend payout ratio for the current year stands at around 83% which, although generous, does not appear excessive.


While there is little scope to increase the payout ratio from the present level, United Utilities remains relatively attractive as an income play due to the stability that it offers. For instance, its business model is, by nature, relatively stable and United Utilities also benefits from having far less political risk than sector peers such as SSE and Centrica. This means that shares in United Utilities are likely to be less volatile, since the media and politicians seem less interested in the water supply industry than they do in the electricity supply industry. The upshot of this is a more predictable share price and dividend stream for investors.

Looking Ahead

Although many of its peers offer superior dividend growth rates and the scope for higher payout ratios, United Utilities remains a super income stock. Not only does it have a relatively attractive yield, it also offers stability and a lack of political risk. Together, they make it a great income play.

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.

Peter owns shares in United Utilities.

More on Investing Articles

Young black man looking at phone while on the London Overground
Investing Articles

1 delicious penny stock I reckon can deliver juicy returns and growth

This food delivery penny stock has experienced a surge in performance and uptake recently. Our writer is excited by its…

Read more »

Investing Articles

If I’d bought Rolls-Royce shares the day Tufan Erginbilgiç joined here’s what I’d have now

Harvey Jones is startled by just how fast the Rolls-Royce share price has risen since its transformative CEO took over.…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

How much do I need to invest in Lloyds shares to earn income of £1,000 a year?

Harvey Jones is getting income and growth from his Lloyds shares but wished he'd bought more of them. So he's…

Read more »

Illustration of flames over a black background
Investing Articles

Down 75%! Will the Saga share price ever be loved again?

The last few years have been incredibly difficult for those watching the Saga share price. But what does the future…

Read more »

Investing Articles

What kind of return could I expect by investing £100 monthly in a Stocks and Shares ISA?

Using a Stocks and Shares ISA to avoid capital gains tax could grow a £100 monthly investment into a second…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Can strong operational momentum keep the Informa share price rising?

FTSE 100 company Informa has been performing well, but this may be just the beginning of a multi-year trend for…

Read more »

Market Movers

What’s going on with the Britvic share price?

Jon Smith flags up why Britvic's share price is surging on Friday, but believes that the company is in a…

Read more »

Cheerful young businesspeople with laptop working in office
Dividend Shares

2 super-cheap passive income shares I’m eyeing up right now

Jon Smith discusses two of his favourite passive income shares in the banking and property sectors, both featuring yields above…

Read more »