The UK's main stock index, the, got off to a strong start to December, after solid gains in November.
Gains in the FTSE reflect the recent strength of both US indices and many world markets. Positive vaccine news}} from companies like Pfizer (NYSE :), BioNTech SE (NASDAQ 🙂 and Moderna (NASDAQ 🙂 have cheered early holidays in many portfolios.
On December 2, the UK became the first country to approve the "Pfizer / BioNTech vaccine for COVID-19". Market participants are hoping that life can go back to pre-coronavirus days, especially without further lockdowns.
However, it is too early to say that the British economy has crawled out of the woods. The Office for National Statistics has officially stated that the UK economy is in recession. As a result, many investors are still nervous about the outlook for UK markets in the coming quarters.
When market uncertainty threatens, many investors worldwide look for utilities known as defensive games. Their stable cash flows usually also help them pay out juicy dividends. In the US, the most followed decline is 1.2% year-to-date (YTD).
Average graph from Dow Jones Utility.
Today we will review a utility supply of the FTSE 100, namely Pennon Group (LON 🙂 (OTC :), which provides water and waste management services.
The Exeter-based company may also be of interest to passive income seekers. The current dividend yield is approximately 3.8%.
Pennon Group's revenues were mixed
In late November, the group released semi-annual trading
CEO Susan Davy, satisfied with the results in the days of COVID-19, said:
“ The completion of the Viridor sale in July this year has delivered significant shareholder value, allowing us to focus on excellence in the water and wastewater industries.
"Environmental considerations remain central to our decision-making and we are committed to meeting our commitments."
Since the beginning of the year, shares have fallen about 5.9%. On December 3, PNN closed at 995p. ($ 27.0 for US stocks).
Pennon Group 1-Year Chart.
The current forward P / E and P / B ratios are 16.92 and 1.4, respectively. We believe that shares could be volatile in the last days of the year as the UK and the European Union try to reach an agreement on a mutually acceptable trade deal.
Long-term investors, however, may want to consider buying the dips. In addition to capital appreciation, they could likely see rising income from Pennon Group as it will potentially increase payouts over time.
The Bottom Line
In addition to Pennon Group, there are other utilities in the UK. They include:
National Grid (LON 🙂 (NYSE 🙂 – YTD Decreased 9.5% (discussed here)
Severn Trent (LON 🙂 (OTC 🙂 – YTD down 6.1%
SSE (LON 🙂 (OTC 🙂 – YTD down 4.8% (discussed)
United Utilities (LON 🙂 (OTC 🙂 – YTD down 1.4%
As the statistics show, returns so far in 2020 have not been positive. However, many UK-based investors typically hold utilities for relatively high dividends. For UK-based investors looking to focus on domestic equities, we think buying utilities could also be a viable strategy in the coming quarters.
Those investors who are unwilling to invest capital in one stock like Pennon Group, but prefer to invest in a basket of utilities, may also consider exploring an exchange-traded fund (ETF) such as the Utilities Select Sector SPDR® Fund (NYSE 🙂 .
The fund, which began trading in 1998, provides access to a range of utility companies and energy traders. Since the beginning of 2020, the ETF has fallen almost 2% and its current price supports a dividend yield of 3.9%.
Top names in the fund include NextEra Energy (NYSE :), Duke Energy (NYSE :), Dominion Energy (NYSE :), American Electric Power Company (NASDAQ 🙂 and Southern Company (NYSE 🙂 (NYSE: { {7956 | SO).
For those looking to diversify their portfolios with stocks with stable passive income, utility stocks such as the Pennon Group or an ETF might be suitable.