James Moore: Splash out on United Utilities and you'll be singing in the rain

Investment View: Spending on water bills is not discretionary, spending on the high street definitely is

United utilities

Our view Keep buying

Share price 637p (-17p)

Not for nothing is Manchester known as the rainy city. In fact, rain, and lots of it, is part of everyday life in the North-west of England. Drought? What drought?

United Utilities just happens to be based in that part of the world. While gardeners in large parts of the rest of the country were gnashing their teeth as certain water companies moaned that the recent downpour was "the wrong kind of rain" after having imposed hosepipe bans, United's customers were able to water their gardens to their hearts' content. Its reservoirs are90 per cent full.

Such things make for happy customers, and the company was making much of the work it has been doing on that front in its recent results statement.

Perhaps that was with a nod to the regulator. Ofwat would like to alter the terms of water company licences but (unsurprisingly) the industry has said no, not on your life.

Which creates a degree of uncertainty from an investment perspective. Having received a hostile response when it laid out its desire for greater flexibility in the way prices are set, the ball is back in Ofwat's court. United yesterday said it believed a deal could still be done and wants to work with the regulator.

Such conciliatory statements are sensible and bode well for an outcome that everyone can live with, although it wouldn't be particularly shocking to see life getting tougher for the industry given the woes being faced by consumers generally and how popular any action on bills would be with them.

In the meantime, investors can very happily live with United based on yesterday's results.

Operating profits were down (a teeny, tiny bit) at £594.1m from £596.4m, although the numbers were slightly better than some analysts had expected.

The dividend increase – to 32.01p – was bang in line. Right now the company promises to increase payments at RPI (retail price inflation) plus two per cent. Its bills, by contrast, can only rise at RPI minus 0.2 per cent.

That said, the company says it can increase its regulatory capital value at the rate it wants to increase its dividend by working more efficiently (and by using a degree of smarts). This includes, for example, fixing things first time round rather than doing a slapdash job and having to return again and again. Sounds sensible, really. One might ask why this thinking didn't take root more rapidly.

Nevertheless, United is making good on its promises. The dividend may ultimately rise a tad more slowly than rivals – some of whom have more headroom for rises because they pay out less of what they earn.

But United is hitting its targets and analysts say they are realistic.

The prospective yield for the year to the end of March 2013 is a balmy 5.6 per cent.

That compares favourably, for example, to Pennon (4 per cent) and Severn Trent (4.6 per cent). The rivals report next week.

Meanwhile, United trades on 15.6 times earnings against 15.4 times for Pennon and 16.3 for Severn Trent. It isn't overly expensive by any means, and while the shares have fallen recently, they have outperformed the FTSE 100.

No wonder. The allure of defensive stocks has increased again in recent weeks amid a stream of poor economic news combined with the eurozone's ongoing torment.

While the back and forth with the regulator creates an unusual degree of uncertainty for the sector, and shouldn't be ignored, it needs to be kept in perspective. Spending on water bills is not discretionary, spending on the high street definitely is. Savings companies, too, are finding life tough and so are many other sectors. That looks set to continue.

Against this backdrop, United Utilities' attractions are obvious. I highlighted its virtues in an earlier article on yield in January. Those virtues are, if anything, even more obvious now than they were then. Keep buying.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
News
US comedian Bill Mahr
people
Voices
Winston Churchill, then prime minister, outside No 10 in June 1943
voicesA C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
Sport
football
News
Rob Lowe
peopleRob Lowe hits out at Obama's snub of Benjamin Netanyahu
PROMOTED VIDEO
News
Davies (let) says: 'Everybody thought we were having an affair. It was never true!'
people'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'
Arts and Entertainment
Over their 20 years, the band has built a community of dedicated followers the world over
music
News
Staff assemble outside the old City Road offices in London
mediaThe stories, the writers and the changes over the last quarter of a century at Britain's youngest paper
Life and Style
The Oliver twins, Philip and Andrew, at work creating the 'Dizzy' arcade-adventure games in 1988
techDocumentary looks back at origins of the computer-games industry
Arts and Entertainment
Krall says: 'My hero player-singer is Elton John I used to listen to him as a child, every single record
music
News
Friends for life … some professionals think loneliness is more worrying than obesity
scienceSocial contact is good for our sense of wellbeing - but it's a myth that loneliness kills, say researchers
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Arts and Entertainment
The Wu-Tang Clan will sell only one copy of their album Once Upon A Time In Shaolin
musicWu-Tang Clan and The Sexual Objects offer fans a chance to own only copies of their latest albums
News
i100
Environment
Number so freshwater mussels in Cumbria have plummeted from up to three million in the 20th century to 500,000
environment
Life and Style
Models – and musicians – on the catwalk in Dior Homme for the men’s 2015/16 fashion show in Paris
fashionAt this season's Paris shows, various labels played with the city boys' favourite
News
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Tax Assistant

Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

Recruitment Genius: Outbound Sales Executive - OTE £25,000

£16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Java Developer / J2EE Developer - Watford - £45,000 - £47,000

£45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...

Ashdown Group: Marketing Product Manager - (Financial Services) - SW London

£35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Day In a Page

Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

What the six wise men told Tony Blair

Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

25 years of The Independent on Sunday

The stories, the writers and the changes over the last quarter of a century
Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

Homeless Veterans appeal

As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

Smash hit go under the hammer

It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

The geeks who rocked the world

A new documentary looks back at origins of the computer-games industry
Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

Belle & Sebastian is taking a new direction

Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
America: Land of the free, home of the political dynasty

America: Land of the free, home of the political dynasty

These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
A graphic history of US civil rights – in comic book form

A graphic history of US civil rights – in comic book form

A veteran of the Fifties campaigns is inspiring a new generation of activists
Winston Churchill: the enigma of a British hero

Winston Churchill: the enigma of a British hero

A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
Growing mussels: Precious freshwater shellfish are thriving in a unique green project

Growing mussels

Precious freshwater shellfish are thriving in a unique green project
Diana Krall: The jazz singer on being friends with Elton John, outer space and skiing in Dubai

Diana Krall interview

The jazz singer on being friends with Elton John, outer space and skiing in Dubai
Pinstriped for action: A glimpse of what the very rich man will be wearing this winter

Pinstriped for action

A glimpse of what the very rich man will be wearing this winter
Russell T Davies & Ben Cook: 'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'

Russell T Davies & Ben Cook: How we met

'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'
Bill Granger recipes: Our chef serves up his favourite Japanese dishes

Bill Granger's Japanese recipes

Stock up on mirin, soy and miso and you have the makings of everyday Japanese cuisine
Michael Calvin: How we need more Eric Cantonas to knock some sense into us

Michael Calvin's Last Word

How we need more Eric Cantonas to knock some sense into us