The Motley Fool

Two Footsie dividend stocks that should pay you for the rest of your life

Image source: Getty Images.

Water companies such as United Utilities (LSE: UU) and Severn Trent (LSE: SVT) have traditionally been great investments for investors seeking a defensive long-term income stream. 

Indeed, the world will always need water and infrastructure to get it where it needs to be, so these companies should, in theory, be able to provide you with a steady income for the rest of your life.

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...

But as my Foolish colleague Peter Stephens recently pointed out, over the past year, political and regulatory risks have scared investors away from these companies, the result being that shares in United Utilities and Severn Trent have significantly underperformed the broader market.

Time for a turnaround? 

Shares in United have lagged the FTSE 100 by around 27% excluding dividends over the past 12 months, while shares in Severn have underperformed by approximately 22% over the same period. 

However, these declines have left the shares offering what is known in value investing circles as a ‘margin of safety’. Put simply, this means that selling of these shares now appears to be overdone and all the bad news is now reflected in the share price, but there’s no allowance given for a possible positive surprise. 

That being said, it is difficult to argue that the operating environment for water companies will become more comfortable over the next few years. It’s more than likely that most of these firm will have to reduce the amount of cash they return to shareholders as regulations bite. Nevertheless, I do not believe that United and Severn will be forced to cut their dividends altogether, which leads me to conclude that they will both continue to provide you with a steady income stream for many years. 

A margin of safety 

At the time of writing, shares in United support a dividend yield of 5.8%, compared to the market median of 3.2%. If we assume the worst and factor in a dividend cut from 40p (City forecast for 2019) to 20p, investors will be left with a yield of 2.9% at current prices. That’s below the market median but still an attractive level of income from a defensive asset. Meanwhile, a 50% dividend cut at Severn would leave the company with a dividend yield of 2.6% (also based on 2019 City figures). 

These figures show that even if the two companies are forced to cut their dividends, they will remain attractive income investments. What’s more, even in this adverse scenario, it is likely that the payouts will continue to grow at a rate greater than or equal to inflation. 

So overall, while United and Severn might not be the most popular stocks around at the moment, they should continue to be reliable income plays for you to buy and hold in your portfolio. Even in the most adverse scenario, the two companies will continue to offer defensive, inflation-protected dividends, top qualities that few other stocks offer.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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.