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Sometimes a good dividend stock goes unnoticed. And looking at the United Public Services Group (LSE:USA) share price, I think I see just that here.
The water company's stock has had a good five years. But that's after a long decline since the turn of the century.
The stock might look a little high now, with a drop in earnings on the cards for this year. And a trading update on February 14 said there's no real change to that.
As expected
The firm said it has “There are no material changes to the 2023/24 financial guidance.“.
The update didn't give us much on the financial front. We received information about the weather in the North West, which appears to have had a £25m impact on the business. Is too much rain really that bad for a water company?
In United's first half results update, CEO Louise Beardmore had spoken about the company “ambitious business plan for 2025-30“. The intention is “Transform service delivery for customers and the environment in the North West“, seems.
Full-year operating costs were expected to be £60 million higher, largely driven by inflation. And the city believes that should dampen this year's profits.
Earnings growth
There is still a 4.6% dividend cut for the 2023-24 year. However, it would not be fully covered by earnings. But forecasts suggest strong earnings growth over the next two years, with the dividend well covered by 2026.
One thing I like about this type of stock is its long-term visibility. Revenues, costs and profits can be seen more clearly than in most companies. That's what comes with an essential product, with predictable and constant demand.
That's why I also qualify National Network as one of my top long-term income stocks. The dividend yield is not the highest in the world. FTSE 100for long.
But with a stock like that, I'd rate your 5.7% forecast as an almost obvious buy. Hmm, I wonder if that says anything about why I haven't bought any yet.
United Utilities Dividends
United Utilities has been paying progressive dividends for years. Over the last decade, cash has grown faster than inflation. Well, at least long-term inflation, with the current streak a bit outside the norm.
With that kind of reliability, I think it could be a great core part of a stocks and shares ISA.
In fact, if I don't buy National Grid shares for my ISA this year, I'll almost certainly buy some United Utilities shares. Or maybe have a little of each. Wow, it's so hard! There are too many cheap FTSE 100 shares to choose from!
Debt
Now, what about the risk? Well, halfway through, the balance sheet complained below £8.5bn of net debt. That's more than the entire market capitalization of £7bn.
So yes, if we have some tough years, that could affect the dividend. And that, in turn, could push back the stock price.
However, all in all, the long-term visibility makes me worry less about debt here.
