United Utilities Group PLC (LON:UU) (LSE:UU.L) has released a trading update. Its revenue is expected to be slightly down on H1 of the previous year because of the accounting impact of its Water Plus business retail joint venture. This completed on 1 June 2016 and was partly offset by United Utilities’ allowed regulatory revenue changes.
Underlying profit for H1 2016/17 is forecast to be marginally higher than in the corresponding period of the previous year. Infrastructure renewals expenditure (IRE) is due to be slightly lower than H1 of last year. United Utilities expects an increase in IRE in line with its capital investment phasing in H2 2016/17.
United Utilities’ net debt is forecast to be slightly higher as at 30 September than it was at 31 March 2016. This principally reflects regulatory capital expenditure, the payment of the 2015/16 final dividend as well as payments in relation to interest and tax, largely offset by cash flows.
Underlying net finance expense for H1 2016/17 is anticipated to be £20 million higher than in H1 of last year. This mainly reflects the impact of higher RPI inflation on index-linked debt. Gearing remains within United Utilities’ target range of 55% to 65%.
United Utilities yields 3.9% from a dividend which is covered 1.2 times by EPS. This yield is lower than the yields of other income stocks such as National Grid plc (LON:NG), GlaxoSmithKline plc (LON:GSK), HSBC Holdings plc (LON:HSBA), and Royal Dutch Shell Plc (LON:RDSB).
National Grid yields 4.1% from a dividend which is covered 1.4 times by profit. Likewise, GlaxoSmithKline’s yield of 4.9% is covered 1.2 times by profit, HSBC’s yield of 6.3% is covered 1.3 times by profit and Shell’s 7.5% yield was not covered by EPS last year.
In my view, United Utilities offers greater stability and consistency than GlaxoSmithKline, Shell and HSBC when it comes to dividend payments. Therefore, its lower yield still has appeal. National Grid’s outlook is also relatively robust, which makes it my top pick for dividends of the five shares. However, I still feel that United Utilities has income investing appeal.
The author owns shares of United Utilities, Shell, HSBC, GlaxoSmithKline and National Grid at the time of writing.