As a provider of water services, Severn Trent (LSE: SVT)’s sales and profits are more predictable than most companies’. This makes their shares less volatile and more attractive to long-term investors.
The attractions recently proved too much for one consortium of investors, who tried to take control of the company in May with a 2,200p per share offer. This was rejected by the board and withdrawn. The shares today trade at 1,770p.
Severn Trent is forecast to pay a dividend for the year of 80.4p from earnings per share (EPS) of 91.2p. That puts the shares on a P/E of 19.4, with an expected yield of 4.5%.
National Grid (LSE: NG)(NYSE: NGG.US)’s main business is delivering energy to customers in the UK and North America.
This is a business with significant barriers to entry and good visibility of future revenues. Like Severn Trent, National Grid pays out almost all of its profits to shareholders in dividends.
In the last five years, dividend growth has been in-line with profit growth at 6.7% per annum. In that time, the payout has suffered only one small cut.
Profits are forecast to broadly hold steady this year and next, putting the P/E at around 14.3. The anticipated yield for 2013 is 5.4%, rising to 5.6% next year.
That’s a P/E around the average for a FTSE 100 share but a yield that it significantly higher.
Like Severn Trent, United Utilities (LSE: UU) is a water and sewerage services company. Despite its strong, protected market position, United has served up some big disappointments to shareholders in recent years. The result is that since 2007, dividends and EPS have actually fallen.
In those five years, the shareholder dividend has been cut twice: by 46% in 2008 and 13% for 2011. In that time, the company’s debts have been steadily increasing.
Using the consensus analyst forecasts for 2014, the shares are today trading on a P/E of 16.2, with an expected yield of 5.2%.
Despite the history, United still looks an attractive share for a diversified income portfolio.
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> David does not own shares in any of the above companies.