The advice of United Utilities Group PLC (LON: UU.) Announced it would increase its dividend by 1.5% on August 2 to £ 0.29. This will bring the annual payout from 4.4% to 4.4% of the share price, which is more than most companies in the industry pay.
Check out our latest analysis for United Utilities Group
United Utilities Group dividend well covered by earnings
While it is good to have a high dividend yield, we also need to consider whether the payout is sustainable. Prior to this announcement, the United Utilities Group dividend was only 65% of earnings, but it paid 136% of free cash flow. This indicates that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to reductions in the future.
Over the next year, EPS is expected to drop 27.7%. Assuming the dividend continues according to recent trends, we think the payout ratio could reach 92% which is definitely higher.
United Utilities Group has a solid track record
The company has a long history of paying stable dividends. Since 2011, the dividend has increased from UK £ 0.30 to UK £ 0.43. This means that the company has increased its distributions at an annual rate of approximately 3.7% during this time. While we can’t deny that the dividend has been remarkably stable in the past, growth has been quite subdued.
We could see United Utilities Group dividend increase
Investors who have held shares of the company for the past several years will be pleased with the dividend income they have received. Profits have grown 2.7% per year for the past five years, which admittedly is a bit slow. United Utilities Group is struggling to find viable investments, so it returns more to shareholders. This isn’t necessarily bad, but we don’t expect rapid dividend growth in the future.
Overall, it’s probably not a great income value, although the dividend is increased at the moment. The low payout rate is a buyout feature, but in general we are not very happy with the payouts made by United Utilities Group. We don’t think United Utilities Group is a good stock to add to your portfolio if income is your goal.
Firms with a stable dividend policy will likely benefit from greater investor interest than those with a more inconsistent approach. However, there are other things for investors to consider when analyzing the performance of stocks. For example, we have chosen 2 warning signs for United Utilities Group that investors should consider. We have also set up a list of global stocks with a solid dividend.
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