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United Utilities turns up the tap on investment and dividends

The water supplier hiked its total dividend 4% to 41.28p per share
Regulatory and political concerns have weighed on the water sector in recent weeks

Water company United Utilities Group PLC (LON:UU.) has said it is increasing investment after reporting results for a year when underlying profits jumped 24%.

The sector has been under pressure in recent weeks due to tougher regulatory rulings and rising political concerns, as the Labour party has outlined its re-nationalisation plans.

READ: Deutsche Bank waters down targets for United Utilities, Severn Trent and Pennon

Providing income-hungry investors with liquid rewards in Thursday’s results for the year to 31 March, the FTSE 100 group hiked its total dividend by 3.9% to 41.28p per share after increasing cash flow generation by 1.9% to £832mln.

UU's annual revenues rose 4.8% to £1.8bn and while reported operating profit was flat at £634.9mln, underlying profit after tax was 24% higher at £378.7mln as net regulatory capital spend was nudged up to £821mln.

For the current current regulatory period, UU said it anticipated an incentive reward of £16mln as, though net debt crept up to £7.1bn from £6.9bn a year ago, it enjoyed a low cost of debt compared with water regulator Ofwat's industry-wide assumptions and had delivered a strong performance on customer satisfaction scores.

Ofwat recently delivered its initial fast-track assessment of the company’s business plan for the next regulatory period, covering 2020 to 2025. This set out the prices the companies can charge over the coming years, which analysts said included “slightly more conservative” estimates for both allowed returns and outperformance.

UU chief executive Steve Mogford said the group will be increasing its additional investment by another £100mln “to accelerate the delivery of further performance improvements and facilitate a flying start to the next regulatory period”. 

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