Why I’d buy these utilities shares now the election is over

Why I think utilities companies could be in for a great few years, now political uncertainty is ended.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I look at the BBC news today, and I see the headline “Water firms hit by toughest profit crackdown in 30 years.”

The latest Ofwat edict means water companies will have to cut average bills by £50 over the next five years, and it seems they’ll have to step up their spending to reduce leaks and improve their overall performance.

I was expecting to see share prices fall as a result, and lose some of their post-election gains. But though United Utilities (LSE: UU) and Severn Trent (LSE: SVT) did drop a little when the markets opened, they’ve both picked up again.

Should you invest £1,000 in Dfs Furniture Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Dfs Furniture Plc made the list?

See the 6 stocks

The news of this toughening stance from the water regulatory body does seem relatively minor for shareholders now they know their companies aren’t going to be nationalised by Jeremy Corbyn. And the idea of hiding bad news for shareholders in the shadow of good news does work, it seems.

Stability

Regulatory issues apart, I think the election result should provide more stability for UK businesses than I’d hoped, and it’s all to do with the size of the Conservative majority. While I judge Boris Johnson as “could do better” in the honesty and integrity departments, he’s no longer forced to compromise with the no-deal right-wing faction of the party, or with the DUP and their singular agenda. And that boosts my confidence in the likelihood of a decent trade deal with the EU.

For those of us investing in shares, it’s time to put the uncertainty aside and get back to thinking about the long-term future – though I argue that that’s what we should be doing all the time, regardless of what’s going on in politics.

Since 10 December, United Utilities shares have gained 6.3%, presumably initially on the back of final opinion polls, and that’s the kind of return that would be very nice to get annually over the long term, never mind in just a few days. Then on top of that, forecasts suggest a dividend of 4.7% for the full year.

Long term

And that’s the long-term attraction of United Utilities for me, its dividend. Yes, it’s in a regulated industry, but things like the latest Ofwat thumbscrew-tightening are to be expected and investors can’t complain when they happen. That’s because, in return, you get to own a company with extremely good visibility of future earnings and relative stability of long-term cash flow.

The situation is similar at Severn Trent, whose shares are up a little bit higher with an 8.4% gain since 10 December, and the long-term outlook has to be very similar. Again, because water firms have captive audiences, the volume of services Severn Trent has to provide, and the revenue stream it can expect, can be predicted with far greater accuracy than it can for companies in most sectors.

Capital expenditure

Capital expenditure is also less open to uncertainty in regular operations, as what needs to be invested to provide predictable services is also relatively easy to calculate – though it can take a hit at regulatory change times, like right now.

Checking on the pudding for proof, over the past 10 years, United Utilities shares are up 74%, and Severn Trent’s are up 119%, compared to a FTSE 100 that’s up just 42%. That’s even taking into account the past few Brexit-shaken years. I expect more of the same.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

If an investor put £10k into Greggs shares one month ago, here’s what they’d have today

Greggs shares have had a tough year but Harvey Jones says they're notably cheaper as a result, while the dividend…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

The Phoenix share price jumps 7.5% on today’s results, but still yields a stunning 9.4%!

Harvey Jones put his faith in the Phoenix share price and this morning was rewarded with a 7.5% jump on…

Read more »

Investing Articles

What’s been going on with the Barclays share price?

The rising Barclays share price reflects confidence in management’s strategy to improve business performance and enhance shareholder returns.

Read more »

Investing Articles

Prediction: in 1 year, the IAG share price could reach as high as…

The IAG share price has almost doubled in the last 12 months, but can this momentum continue in 2025? Zaven…

Read more »

Investing Articles

Prediction: in 12 months, here’s where the Glencore share price could be…

The performance of Glencore’s share price has been lacklustre, to say the least. But could all that change over the…

Read more »

Investing Articles

See how much an investor needs in their ISA to earn a £499 monthly second income

Harvey Jones crunches the numbers to show how it's possible to build a long-term second income by investing in a…

Read more »

Investing Articles

I’m considering buying more of this struggling FTSE 100 stock

This FTSE 100 stock hasn't exactly set our writer's portfolio on fire during the time he's owned it. But Paul…

Read more »

a couple embrace in front of their new home
Investing Articles

Prediction: in 1 year, the Taylor Wimpey share price could reach…

Can Britain’s reformed planning scheme send the Taylor Wimpey share price into overdrive? Here’s what the latest analyst forecasts predict.

Read more »