PENNON (PNN) 811.5P
Prospective dividend yield: 4.8%
WATER GROUP PENNON is a classic utility income stock. It has stable regulated earnings balanced with faster growth from its energy and waste business Viridor.
The two businesses split neatly for investors. Viridor provides the growth, via its 12 energy recovery facilities, effectively energy generation units from waste and recycling. th6e Its South West Water arm is re gulated water supply business. It provides the big cash engine to pay the vital dividend.
Both sides of the business have been ticking over nicely with full year to 31 Match 2017 results slightly ahead of analyst expectations.
The only drag comes from a renegotiated contract in Manchester, with the local authority client pleading penury thanks to the government’s ongoing austerity penny pinching. It explains the recent share price weakness with the stock down 14% since late May. That issue now seems to be settled.
But Pennon has again reiterated its promise to lift the dividend by 4% over and above RPI inflation going forward, securing attractive inflationproofed income for investors.
Analysts at UBS anticipate 7.5% dividend growth this year to 38.7p per share, implying a 4.8% income yield. (SF)