The Motley Fool

80.4 Reasons That May Make Severn Trent plc A Buy

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.

Today I am outlining why I believe Severn Trent (LSE: SVT) is an excellent stock selection for those seeking dependable dividends well into the future.

Dividends expected to flow higher

Severn Trent has recovered strongly after it was forced to cut 2011’s full-year dividend, with chunky year-on-year rises in recent years making it a darling of income investors once again. Indeed, City analysts expect Severn Trent’s full-year dividend this year to rise 6% to 80.4p, and I expect payouts to continue rolling higher well into the future.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Like all utility selections, Severn Trent’s defensive nature makes it easy to predict earnings regardless of wider macroeconomic pressures — everyone needs water, after all. This in turn makes them dependable dividend providers. And following this year’s projected dividend increase to 80.4p, the City’s number crunchers anticipate the full-year dividend to rise to 85.1p in the year ending March 2015, a further 5.9% year-on-year increase.

These predicted payments carry chunky yields of 4.3% and 4.6% respectively, comfortably beating the forward average of 3.1% for the FTSE 100 but trading roughly in line with a corresponding readout of 4.4% for the broader gas, water and multiutilities sector.

Still, in my opinion the company is a much more attractive investment proposition than its peers on a cost basis. Severn Trent currently sports a prospective P/E rating of 21.5 versus a corresponding readout of 28.3 for the rest of the sector.

Some argue that the water operator is still an expensive pick when tallied up against a number of other utilities stalwarts, such as Centrica and National Grid which currently carry forward P/E ratings of 12.7 and 14.8 respectively. However, these companies face the prospect of intensifying attacks on their profitability from politicians, consumers and the media alike in coming months.

As I have previously explained, I believe that current attacks on electricity providers will eventually peter out as the residents of Westminster, in reality, realise the potential costs of getting it wrong in their fight against the industry if the lights were to out.

The threat of potential action, however unlikely, is still very real, a scenario which makes Severn Trent a more appealing pick as a dependable dividend payer looking ahead in my opinion. With prices set by water regulator Ofwat, the company is protected from the type of profits attacks currently affecting the electricity sector, making earnings — and thus dividends — growth much easier to forecast over the longer-term.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

> Royston does not own shares in any of the companies mentioned in this article.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.