United Utilities Group (LON:UU.) Is Increasing Its Dividend To £0.1659
The board of United Utilities Group PLC (LON:UU.) has announced that the dividend on 1st of February will be increased to £0.1659, which will be 9.4% higher than last year's payment of £0.152 which covered the same period. The payment will take the dividend yield to 4.2%, which is in line with the average for the industry.
View our latest analysis for United Utilities Group
United Utilities Group Is Paying Out More Than It Is Earning
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. The company is paying out a large amount of its cash flows, even though it isn't generating any profit. This is quite a strong warning sign that the dividend may not be sustainable.
Over the next year, EPS is forecast to expand by 155.3%. Assuming the dividend continues along recent trends, we think the payout ratio could get very high, which probably can't continue without starting to put some pressure on the balance sheet.
United Utilities Group Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2013, the dividend has gone from £0.328 total annually to £0.455. This works out to be a compound annual growth rate (CAGR) of approximately 3.3% a year over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.
Dividend Growth Potential Is Shaky
The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. Over the past five years, it looks as though United Utilities Group's EPS has declined at around 17% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.
United Utilities Group's Dividend Doesn't Look Sustainable
In summary, while it's always good to see the dividend being raised, we don't think United Utilities Group's payments are rock solid. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. Overall, we don't think this company has the makings of a good income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for United Utilities Group that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
