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Burning rubbish underpins Pennon’s dividend growth prospects

The group's growing energy business and outperforming water company looks to fit the bill for investors
Burning rubbish underpins Pennon’s dividend growth prospects

Water company shares are largely bought for their dividend income. However, the security and predictability of that income has proved to be a bit patchy over the years as the industry regulator has squeezed the amount of money that water companies can make.

Both Severn Trent (SVT) and United Utilities (UU.) have had to cut their payouts over the past decade, but Pennon (PNN) has rewarded investors with sector-leading dividend growth that has outpaced the rate of inflation. It has done this by arguably being the best water company operator in the quoted sector. It has spent its money wisely, looking after its pipes, sewers and reservoirs, and has generally served its customers well. This has allowed it to bank extra profits for shareholders.

The other reason for Pennon’s dividend robustness is that it has managed to build a growing source of non-regulated profits that put it in a good place to keep on growing dividends into the future. United Utilities couldn’t do this, while Severn Trent decided to spin off its Biffa Waste business.

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