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Stock of the week: United Utilities

Written by:
Graham Spooner, investment research analyst at The Share Centre, picks broadcaster United Utilities as stock of the week.

Water utility group United Utilities operates in North West England, supplying around 7 million people and 400,000 businesses. The company operates regulated businesses trading under the United Utilities brand and deals with water, waste water and sewerage. The share outperformed in 2015, due to its defensive attractions and attractive prospective dividend yield of 4.2%.

The group’s interim results in November were affected by claims resulting from August’s water bug. Operating profit fell by 18.2% to £278.3m however, investors should appreciate that the all-important dividend was raised to 12.81p. The group believes it is well positioned, with its ongoing efficiency plans and comparatively low cost of the group debt and as a result it aims to increase the dividend in line with inflation through to 2020.

In a market that is turbulent and volatile, investors are seeking companies that will supply them with a relatively reliable return. A defensive sector geared to income stands out like a powerful lighthouse in the current low interest rate environment. United Utilities is therefore a perfect candidate for investors seeking income and we recommend the group as a ‘buy’ for lower risk investors.

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