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Is Pennon Group plc the best income stock around after 7% dividend hike?

Are you worried about Brexit? Be honest, ever since that fateful day in June of last year, you’ve been reading anything and everything about what’s going to happen to our economy, our currency, and indeed our country in the aftermath of our EU exit, and how it affects your investments. OK, maybe it’s just me then. It is my job after all.

Savings slowly being eroded

Truth is, no-one really knows what’s going to happen post-Brexit, as no-one really knows what’s going to happen to the oil price, or even sales of the new iPhone 8 for that matter. Forecasting, or even guessing and hoping is the best we can do in an age of unpredictability and uncertainty.

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So other than letting the value of our savings slowly erode in our bank accounts, what can investors do to protect themselves from the unknowns of a post-Brexit Britain. Well, I have an idea. Why not invest your hard-earned cash in a business that churns out vast amounts of cash, day in, day out, without being affected by a constantly changing political and economic landscape?

Brexit-proof commodity

If ever there was a Brexit-proof commodity then it would be water. We all need it and consume it in vast quantities whatever our financial circumstances might be. There can’t be very many households left in the UK that don’t contribute in some way to the substantial revenues of the big regional water companies. Yep, we’re all customers, whether we like it or not.

Pennon Group (LSE: PNN) is one of the few remaining London-listed water companies that investors can stake a claim in these days. The rest have been swallowed up by a whole host of investment funds and foreign consortia. The Exeter-based group owns South West Water, which provides water and wastewater services to Devon, Cornwall and parts of Dorset and Somerset, as well as leading waste treatment and disposal business Viridor.

Virtual monopoly

I like the fact that Pennon operates as a virtual monopoly within its own geographical area, and is also a leader in delivering energy from waste though the Viridor subsidiary. The FTSE 250 group also has a long-established policy to grow the dividend by 4% above inflation each year at least until 2020.

In fact, earlier this year management hiked the final dividend payout by 7.6% to 24.87p per share, resulting in a total payout for the year to 35.96p, an increase of 7.1%. But that’s not all. City analysts think that this year’s shareholder payouts will be even more generous, pencilling-in a full-year dividend of 38.51p, which equates to a mouth-watering yield of 4.9%.

Upgraded dividend policy

For those who prefer to build their portfolio exclusively around blue-chip companies, then Severn Trent (LSE: SVT) is another of the water companies that has so far eluded predators. The £5.1bn FTSE 100 utility giant provides water services across a large geographical area focused on the heart of the UK, including the Midlands and mid-Wales.

Earlier this year, the Coventry-based group upgraded its dividend policy to deliver growth of at least the Retail Price Index (RPI) plus 4%, taking the proposed 2017/18 dividend to 86.55p per share. After the recent dip in the share price, that equates to a thirst-quenching yield of 4%. In the present climate, I reckon Pennon and Severn Trent could be among the few dividend stocks that remain ‘safe as houses’.

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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.

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