There is a whole range of stocks in the FTSE 100 that can help you retire on a rising, passive income.
One of the sectors that has the best income potential is the utility sector. The water sector is particularly attractive.
Now that the Labour Party’s threat of nationalisation has receded, these companies look extremely attractive as income investments.
Indeed, over the long term, the price of water should rise in line with inflation or wages. That suggests that these companies’ dividends should increase at the same rate.
United Utilities (LSE: UU) already has an excellent track record when it comes to dividend growth. For the past decade or so, the company’s dividend has grown at an average annual rate of around 2.8%.
Recently, there have been concerns that the company, which manages the regulated water and wastewater network in the North West of England, will have to cut its dividend as regulators have decided to clamp down on the sector’s high profit margins.
However, these concerns were put to bed earlier in January, when the water regulator, Ofwat, accepted United’s spending and cash return plan for the period 2020 to 2025.
Under the plan, the company is planning to spend and invest more in its network. Management is also planning to keep borrowing in its target range of 55% to 65%. Gearing is measured as group net debt to regulatory capital value.
Moreover, it appears that United has received the green light from regulators to increase its dividend by at least inflation every year to 2025. Therefore, it seems that the stock can provide a rising, passive income for investors buying today.
Shares in the water group currently support a dividend yield of 4%. The distribution is covered 1.4 times by earnings per share.
Another utility business that also appears to be an attractive investment at current levels is Severn Trent (LSE: SVT).
Just like United, shares in this group have received a boost over the past few weeks after the threat of nationalisation receded. Furthermore, the company seems to have agreed and attractive dividend policy with regulators.
As is the case with United, Severn is planning to increase its dividend by at least the rate of inflation every year.
With the stock yielding 3.9% at the time of writing, above the market average of 3.4%, Severn’s dividend plans suggest that this stock can provide investors with a rising, passive income for the foreseeable future.
Investors could also receive a boost from a possible buyout. Analysts have long believed that Severn could become a buyout target.
So far, no potential offers have come forward, but now that the nationalisation threat has receded, bidders might return. This could provide an attractive capital return for shareholders as well as the company’s market-beating dividend yield.
As such, now could be the time to snap up shares in this defensive income champion.
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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.