2 top dividend stocks I’d buy with £1,000 today

Bilaal Mohamed thinks now could be the perfect time to grab a slice of these two reliable dividend payers.

| 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.

A person holding onto a fan of twenty pound notes

Image source: Getty Images.

If you’re an income investor looking to park your cash somewhere that’s likely to be immune to today’s political and economic uncertainties, then I believe UK-listed water companies would be a great place to start.

Foreign control

Unless you’ve shunned even the most basic of privileges that modern life has to offer, then you’ll no doubt be accustomed to the reliable flow of running water from your kitchen and bathroom taps, and not be too worried about where it goes once you’ve finished with it. Chances are you’re just one of tens of millions of customers of one of the UK’s regional water companies.

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

These giant utility firms are effectively run as regional monopolies, making them very attractive investments indeed. In fact, of the 10 original water authorities in England & Wales that were privatised back in 1989, only three remain listed on the London Stock Exchange. The rest have been completely taken over and are no longer publicly listed, with some even under foreign control.

Predictable inflation-proof income

So what is it about our boring water businesses that proves to be so irresistible to overseas investment funds and foreign consortia? The answer is a steady stream of predictable inflation-linked income.

Industry regulator Ofwat determines how much water companies can charge customers in exchange for services and further investment, with five-year regulatory settlements providing investors with a heads-up on future earnings. In an age of uncertainty that’s very reassuring indeed.

Mouth-watering income

United Utilities remains the largest of the three remaining London-listed water companies, valued at £4.5bn, and you can read my most recent appraisal of the business here. Next in terms of size is Severn Trent (LSE: SVT), the only other water and sewerage company listed in the FTSE 100 index.

The Coventry-based utility giant provides water and wastewater services to residents and businesses across the heart of the UK, as far north as Scunthorpe, and as far south as Gloucester, and even includes parts of Wales.

Last year, the group upgraded its dividend policy to deliver growth of at least the Retail Price Index (RPI) plus 4%, taking the forecast FY2018 payout to 86.64p per share. After the recent dip in the share price, that equates to a mouth-watering yield of 4.9%.

Energy from waste

For those looking for an even higher return on their investment then FTSE 250-listed Pennon Group (LSE: PNN) could be the answer to your prayers. The Exeter-based group is the owner South West Water, which provides water and wastewater services to Devon, Cornwall and parts of Dorset and Somerset.

Like its larger peers Pennon operates as a virtual monopoly within its own defined geographical area, but it also has the added attraction of being a leader in delivering energy from waste through its Viridor subsidiary.

Management hhasve pledged to grow the group dividend by 4% above inflation each year at least until 2020. With analysts having pencilled-in a full-year payout of 38.56p per share for FY2018 this equates to a nice fat low-risk return of 6%.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended Pennon Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

This cheap share fell 30% last week. I’d buy now

This huge US corporation saw its shares crash by 30% last week. But I'd buy this surprisingly cheap share now…

Read more »

Various denominations of notes in a pile
Investing Articles

These 7 shares produce passive income of 7% to 11% a year!

Passive income is extra money I make without working. By buying these seven shares, I could earn 8.9% a year…

Read more »

A person holding onto a fan of twenty pound notes
Investing Articles

6.6%+ dividend yields! 2 FTSE 100 dividend stocks to buy

Finding the best dividend stocks to buy requires extra care today as soaring inflation takes a bite out of shareholder…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

At 85p, are Rolls-Royce shares a slam-dunk buy?

The Rolls-Royce share price is in penny stock territory. Roland Head explains why he thinks this FTSE 100 stalwart looks…

Read more »

Business development to success and FTSE 100 250 350 growth concept.
Investing Articles

‘Big Short’ investor Michael Burry is buying this quality growth stock! Should I?

In the first quarter, Michael Burry bought more of this growth stock. Is this a hint that I should also…

Read more »

A beach at sunset where there is an inscription on the sand "Breathe Deeeply".
Investing Articles

Stock market crash: here’s why falling prices is good news

Over in the US, a stock market crash is battering high-priced stocks. But I see falling shares as an opportunity…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

These 5 FTSE 100 shares crashed in 2022. I’d buy 1 today

Although the FTSE 100 index is flat in 2022, some Footsie shares have crashed hard this year. But I see…

Read more »

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

How investors can boost their passive income when the FTSE is falling

Stock markets are plagued with fears right now. Here's why I firmly believe those fears improve our passive income prospects.

Read more »