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.

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.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

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.  

More on Investing Articles

Female florist with Down's syndrome working in small business
Investing Articles

2 promising penny stocks to buy on the dip

As stock markets continue to correct, I am hunting for oversold penny stocks that I think could help turbocharge my…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

I wouldn’t buy Bitcoin today. FTSE value stocks look much better value to me

Now looks like a promising time to buy UK value stocks, while Bitcoin still looks far too risky for me.

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

The Rolls-Royce share price is below 85p. Here’s what I’m doing!

The Rolls-Royce share price has suffered this year. Trading for below 85p, this Fool decides whether this is an opportunity…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

4 dividend stocks to buy as inflation soars!

I'm hunting for the best dividend stock to invest in as global inflation soars. Here are several high-dividend-yield shares that…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

UK shares to buy now: 3 big fallers I’d snap up

Our writer thinks this trio of strong business performers could be attractive UK shares to buy now for his portfolio.

Read more »

Lady researching stocks
Investing Articles

Could a falling stock market help me get rich?

When the stock market falls, what does it mean for our writer's portfolio? Here's why it could be an opportunity.

Read more »

Hand holding pound notes
Investing Articles

Should I buy these two 12%-yielding dividend shares for my Stocks and Shares ISA?

Do these double-digit dividend yielders offer our author the right balance of risk and reward for his Stocks and Shares…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 reasons to buy Lloyds shares at 43p

Our writer outlines three factors that make him bullish on Lloyds shares, as well as one noteworthy risk facing the…

Read more »