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.

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.

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.

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%.

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.

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

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Here’s how someone could start investing in 2025 with just £1,000

Planning to start investing in 2025? This writer highlights two very different stocks that might be worth considering for a…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

I asked ChatGPT which UK stocks Warren Buffett might look to buy. It suggested these 5 names

ChatGPT has some ideas about FTSE 100 stocks Warren Buffett might have been buying. But Stephen Wright thinks a closer…

Read more »

Investing Articles

Up 14% today! Here’s one growth stock that Elon Musk likes

A UK growth stock has signed another contract with SpaceX. But does this mean it deserves a place in my…

Read more »

Investing Articles

I asked ChatGPT if the FTSE 100 would hit 10,000 this year. It’s feeling bullish!

The FTSE 100's flying and Harvey Jones is feeling bullish. His obvious next step was to ask a chatbot where…

Read more »

Investing Articles

Near 52-week lows, are these FTSE 100 stocks now unmissable bargains?

Two FTSE 100 titans just can't stop falling in value. Paul Summers looks at whether investors should see this as…

Read more »

Investing Articles

Bill Ackman just loaded up on this top stock for his FTSE 100-listed fund

The well-known hedge fund manager has announced a massive holding in this tech stock for his FTSE 100-listed investment trust.

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

Billionaire Bill Ackman has just made a huge bet on this S&P 500 growth stock

Bill Ackman just bought 30m shares in this well-known S&P 500 company. He believes it’s currently trading well below its…

Read more »

Investing Articles

40 and no pension? Here’s what £400 a month in a Stocks and Shares ISA could become

It's never too late to start investing for retirement. Here's how regular contributions to a Stocks and Shares ISA could…

Read more »