There are two main reasons why investors hold shares in water companies: reliable dividend income and takeover hopes. Severn Trent (SVT) has promised to increase its dividend by 3 per cent above inflation each year until 2015, and it has done exactly that for the year ending in March.
The group said the dividend for the current financial year would rise a further 6 per cent to 84.9p. Prospects for the payout beyond 2015 are less certain, as the group cannot set out its new dividend policy until it receives 2015-20 price controls from the regulator. We may have to wait for a trading update early next year to find out what future dividends will look like.
The second key draw - bid hopes - have recently been revived as the water companies move closer to finalising the 2015-2020 price review. Severn Trent rebuffed a 2,200p bid from LongRiver Partners last year. But new chief executive Liv Garfield was noncommittal on what the recently passed Water Act might mean for takeover activity: "I am only eight weeks in; future strategy is not something I am going to discuss."
The City consensus is for adjusted earnings per share of 88p this financial year (2013/14: 88.4p).
| SEVERN TRENT (SVT) | ||||
|---|---|---|---|---|
| ORD PRICE: | 1,938p | MARKET VALUE: | £ 4.6bn | |
| TOUCH: | 1,937-1,939p | 12-MONTH HIGH: | 2,200p | LOW: 1,612p |
| DIVIDEND YIELD: | 4.1% | PE RATIO: | 11 | |
| NET ASSET VALUE: | 450p | NET DEBT: | 408% | |
| Year to 31 Mar | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2010 | 1.7 | 334 | 106 | 72.32 |
| 2011 | 1.7 | 253 | 115 | 65.09 |
| 2012 | 1.8 | 157 | 73 | 70.10 |
| 2013 | 1.8 | 200 | 91 | 75.85 |
| 2014 | 1.9 | 283 | 182 | 80.4 |
| % change | +1 | +41 | +100 | +6 |
Ex-div: 19 Jun Payment: 26 Jul | ||||
