Utility stocks are typically among the most popular buy-and-hold stocks. Regardless of the state of the wider economy, consumers will always demand the services that utilities provide.
This low elasticity of demand mainly attracts passive income seekers, as dividends paid by utilities are generally stable. Interest rates are at record depths in many countries. As a result, shares that pay dividends are increasingly important to many long-term investors.
Today we're introducing two utility companies that investors may want to keep on their shopping list. They are based in the UK SSE (LON 🙂 (OTC 🙂 and Severn Trent (LON 🙂 (OTC 🙂 (OTC :). As the dark winter days continue, Britons, like billions of citizens of the world, have spent many hours indoors. Electricity, gas and water usage is likely to be high.
With that information, let's see if any of these stocks deserve to be on the radar of investors.
SSE
The company focuses on regulated electricity networks and renewable electricity sources. This target fits in well with the recent actions of the UK, which in 2019 became the first major economy to legislate for "net zero" emissions by 2050.
Governments and businesses discuss how economies can recover from the various adverse effects of the pandemic. SSE management is motivated by the potential of "green economic recovery". The company wants to reduce all greenhouse gas emissions to zero. SSE, for example, is building the world's largest wind farm off the east coast of Yorkshire. It recently joined the UN Global Compact's Race to Zero pledge & # 39; committing to a net zero emissions by 2050
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On November 18, SSE was released for the six months ended September 30, 2020. Operating profit fell 15% year-over-year (year-on-year) to £ 418.3 million (or $ 573.9 million). Keeping net debt under control was a priority during the difficult days of the pandemic.
More than a third of today's profit comes from renewable energy sources. Management wants to increase the percentage in the near future. We think the company could well become a green powerhouse.
In the past 12 months, the share has fallen about 2.7%. On January 28, SSE shares closed at 1,492.5p ($ 20.65 for US stocks). The current dividend yield is approximately 5.5%. The average yield of the FTSE 100 is less than 3.0%
Forward P / E and P / S ratios are 15.72 and 2.32, respectively. We love SSE. It is a solid investment in the future of renewable energy in the UK. Potential investors may want to consider buying the dips.
Severn Trent
Severn Trent is a water company providing essential water and waste services in the UK to more than 8 million people. It currently has a valuation of £ 5.58 billion with a 4.3% dividend yield. On January 28, SVT stock closed at 2,336p ($ 32.91 for US stocks). In the past year, shares have fallen by about 8%.
The challenge that the company has had for years has been controlling maintenance and infrastructure costs. Balancing large investment costs (capex) with competitive prices and continuous service to customers are the main objectives.
Severn Trent has been given the go-ahead to secure water supplies to Birmingham City for the next 100 years with a major infrastructure project. The group has no plans to implement any of these major infrastructure changes in the next five years. Instead, it chooses to focus on reducing the costs incurred by the business from leaks and maintenance.
Management has also participated in the Race to Zero campaign, which aims to strengthen the leadership of businesses, cities, regions and investors for a healthy, resilient, decarbonised recovery.
Severn Trent Weekly Chart.
The group announced at the end of November. Due to the pandemic, sales decreased by 2.4% year on year. Earnings before interest and taxes (PBIT) also fell 19% year-on-year.
The forward price / earnings ratio and price / earnings ratio of SVT shares are 18.55 and 3.12 respectively, which puts the valuation on the foaming side. We like the stock as a steady dividend game. A possible drop of 5% -7% would provide a greater margin of safety for long-term investors
