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A cheap FTSE 100 dividend share that I’d buy and hold for 10 years

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The income investing potential of the FTSE 100 continues to be impressive. With inflation rising to 2.7% in August, demand among investors for high-yielding stocks could increase. And with the valuations of a number of such companies indicating that they offer wide margins of safety, now could be the right time to buy.

With that in mind, here’s a FTSE 100 utility share which, while unpopular, could perform well over the long run. It seems to offer a mix of income and value investing potential.

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Defensive appeal

United Utilities (LSE: UU) has recorded a share price fall of almost 20% in the last year. There are concerns among investors regarding the regulatory risk that the water company faces. It’s set to reduce average bills by 10.5% in real terms between 2020 and 2025. While this is positive news for the company’s customers, it could put the financial prospects of the business under a degree of pressure. This has called the affordability of its dividend into question.

With United Utilities now yielding around 5.7%, it appears as though investors may have factored in potential slow dividend growth over the long run. Its current income return is high by its own historical standards, and indicates that it could offer a margin of safety. Further evidence of this can be seen in the stock’s valuation. It currently has a forward price-to-earnings (P/E) ratio of under 14, which indicates that its shares offer good value for money.

Of course, the company could have defensive appeal over the medium term. The current FTSE 100 bull market will not last in perpetuity, and defensive shares with lower correlation to the wider economy could gain in popularity. United Utilities could therefore become an increasingly appealing income share to own over the coming years.

Improving outlook

Also offering income potential within the utility industry is Fulcrum Utility Services (LSE: FCRM). The independent multi-utility infrastructure and services provider released a trading update on Wednesday which highlighted its strong performance in the six months to 30 September. It has seen an increase in its order book of 5%, which now stands at £44.1m.

Two significant contracts were built out during the period. The first is a large gas pipeline to a food manufacturing plant, while the second is a large high voltage electricity infrastructure project for a battery storage site.

The company continues to grow its utility asset estate and the associated annuity revenue streams. The integration of Dunamis is also progressing well, with increasing numbers of collaborative gas and electricity opportunities being generated.

Looking ahead, Fulcrum is expected to post earnings growth of 8% in the current year. This has the potential to boost its dividend payments, with it currently having a dividend yield of 3.7%. Since dividends are covered 1.9 times by profit, they seem to offer scope to rise at a brisk pace. As such, the stock could be a worthwhile income investment for the long term.

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Peter Stephens owns shares of United Utilities. 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.

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