Replacing SSE with UU. or SVT?

[Newroad]

Morning All.

With SSE's impending dividend cut, it will likely get replaced in my pseudo-HYP with another share from the "Utilities" (Electricity, Gas, Water and Multi Utilities, Waste and Disposal Services) sector.

I already hold NG. so (according to Dividend Data) the next cab off the rank to consider would be UU. (4.69% yield) followed by SVT (4.55 yield). Any thoughts on these two, in particular compared to each other in a "beauty parade"?

Regards, Newroad

[monabri]

I think politics alone would make me think twice before buying into a water company. There has been quite a bit of adverse newsprint regarding the extent and frequency that they have discharged untreated "materiels' into the environment. There is also the case of how much debt they are carrying.....a lot!

Have a look at the companies board
viewtopic.php?f=94&t=16288

And I think there was discussion on the HYP P board a couple of months ago.


Definitely suggest a read of this!
https://www.ofwat.gov.uk/ofwat-announce ... dividends/

I've personally opined along the lines of " here's a business sector that pollutes the environment yet wants ME the customer to pay more in bills for them to clean up their act, all the while the shareholders will receive a dividend and the CEO a fat salary? No, that's no right nor fair".

[daveh]

Morning All.

With SSE's impending dividend cut, it will likely get replaced in my pseudo-HYP with another share from the "Utilities" (Electricity, Gas, Water and Multi Utilities, Waste and Disposal Services) sector.

I already hold NG. so (according to Dividend Data) the next cab off the rank to consider would be UU. (4.69% yield) followed by SVT (4.55 yield). Any thoughts on these two, in particular compared to each other in a "beauty parade"?

Regards, Newroad

I've been cutting my water utility holdings. Why?
1) they have become a political football and are likely to have problems with regulation and requirements for extra investment in the not too distant future and may have difficulty raising prices to cover that
2) They are loaded up with debt much of which is index linked - though theoretically that is covered by the fact water prices are also linked to inflation, but see point 1

So I sold all my PNN holding and have halved my UU. holding (sold in one account) and am thinking of selling the other half.

I should perhaps have sold earlier, but what has spooked me (on top of the debt situation with interest rates and inflation increasing) is how much they are in the news in a bad way and how many politicians from all parties are saying something needs to be done about pollution incidents.

[monabri]

https://www.standard.co.uk/business/wat ... 68524.html

"Water and sewerage regulator Ofwat will stop water companies from paying dividends if the watchdog believes they are not delivering results for customers and the environment.The new rules come after water companies faced criticism for paying high dividends to shareholders rather than reinvesting profits into infrastructure improvements."

( Labour Government in coalition with the LDs or the Greens...is that a possibility..?)

https://www.waternewseurope.com/privati ... reholders/

"UK: Private water companies awash with debt as dividends go to shareholders"

https://weownit.org.uk/public-ownership/water

( good luck with that...!)

Thames Water...a recent problem.
https://www.bbc.co.uk/news/business-660515558

[kempiejon]

I hold Severn Trent, United Utils, Pennon and SSE. Gathered over 20 years plus of HYPing as different companies have moved out of favour new money has been redirected. UU was my first but a cut a decade back and I refocused to SVT just in time for them to cut.
Looks like SVT has the better long term dividend growth record. With utilities I check what commitment the board has made to dividend increases.

Severn Trent is seen as an income stock, offering a steady and regular shareholder return with low levels of risk. In light of our most recent regulatory settlement and current performance levels, the Severn Trent PLC Board has 2020 to 2025 dividend policy of growth of at least CPIH.

https://www.severntrent.com/shareholder ... -dividend/
I will probably let SSE ride as I'm not usually inclined to sell, the reduced yield will be around 3.5% with a commitment to increase.

As part of its five-year investment plan, SSE is targeting dividend increases in line with RPI inflation to March 2023, followed by a rebase to 60p in 2023/24 and at least 5% annual increases to March 2026.

https://www.sse.com/investors/sharehold ... rch%202026.

[Dod101]

I have never held any water companies as I just do not think their business case is very strong. Recently of course we have all the other factors that have been mentioned in this thread. Besides, they are not in the least comparable with an electricity supplier like SSE. I am just going to let my SSE shares stay right where they are and live with a modest reduction in the dividend. Their business prospects are good; they are cutting the dividend to help release funds for future investment in a growing area. Why swap a business which is growing in a desirable area (green energy) with one with serious ethical and business issues to address?

If I were forced to replace SSE I would be looking at the likes of Greencoat, a much better proposition than any water company.

Dod

[Newroad]

Thanks, All.

For the very useful replies. Considering the political risk noted by most, anyone got a view on how exposed UU. is versus SVT?

[Dod] Completely understand your take, but as you have noted, you don't run a HYP per se (nor do I, for that matter). However, my pseudo-HYP is close enough, rules based and somewhat experimental, so I take it in that light - and the dividend gap that SSE has now opened up with the other two is non-trivial.

Regards, Newroad

[moorfield]

I already hold NG. so (according to Dividend Data) the next cab off the rank to consider would be UU. (4.69% yield) followed by SVT (4.55 yield). Any thoughts on these two, in particular compared to each other in a "beauty parade"?

Why not take the opportunity to replace it with a higher yield investment trust?

From the renewable energy sector for example:
FSFL 8.0%
JLEN 7.7%

[monabri]

https://goodlawproject.org/united-utili ... wage-2022/

"United Utilities dumps the most sewage in 2022

31st March 2023

"Today it’s been revealed, perhaps unsurprisingly, that the North West based water company United Utilities is the worst offender for dumping sewage into our local rivers and coastal waters. "





Debtwise...SVT is running at 700%+ debt to equity. UU is over 300%. Margins are poor, no chance the debt will be paid anytime soon.


I should add, I had occasion to report a sewage discharge just last week to SVT. To be fair, they responded within the hour. I have reported other events on 4 occasions ( all at the same spot ).

[Newroad]

Hi Moorfield.

In short (experimental) methodology.

Regards, Newroad

[monabri]

https://www.telegraph.co.uk/news/2023/0 ... ge-spills/

26th September 2023
"The streets flow with raw sewage’: Yorkshire’s wastewater disaster
Residents in Skipton and Ripon share their accounts of witnessing raw sewage pile up on roads and pavements, as well as in rivers"


"An Environment Agency spokesperson said, “We are unequivocal that sewage pollution across the country – including in Yorkshire – is unacceptable. We are holding the industry to account on a scale never seen before. This includes significantly driving up monitoring and transparency from water companies in recent years, as well as taking tough action against those companies which are breaking the rules including fines of more than £150million since 2015. Our new powers to deliver penalties, which are quicker and easier to enforce, will also act as an important deterrent against criminal behaviour.”"

[Newroad]

For those interested, may I ask a devil's advocate question?

The concerns you all list are no doubt valid, but the market should be a discounting mechanism. If so, whilst there is political risk, there should also be upside risk of the political risk not manifesting, or not manifesting as severely as it might.

Or is many of your basic premises that the market is missing the point and not (adequately) discounting the political risk?

Regards, Newroad

[daveh]

More trouble for the water companies:
https://www.bbc.co.uk/news/business-66922070

with UU. coming out better than almost all the others here:

Water companies have been ordered to pay back £114m to customers through lower bills after missing key targets.

Ofwat, the industry regulator, said that firms are "falling short" on performance measures around leakages, supply and reducing pollution.
It said that following a review, millions of pounds would be returned to households by cutting bills.
Ofwat said in its assessment that not one company reached the highest measure of performance.
Dŵr Cymru, Southern, Thames, Anglian, Bristol, South East and Yorkshire Water fell into the lowest category of "lagging" and the remaining 10 were rated "average". None were considered "leading".
The regulator judges water companies in England and Wales against "stretching" targets set in 2019 for a five-year period.
If they fail to meet targets, Ofwat restricts the cash that they can take from customers.

All but five of the water providers reviewed will have to give money back to customers by reducing their bills in 2024-25, rather than each bill payer getting a lump sum refund.

[Dod101]

More trouble for the water companies:
https://www.bbc.co.uk/news/business-66922070

with UU. coming out better than almost all the others here:

Water companies have been ordered to pay back £114m to customers through lower bills after missing key targets.

Ofwat, the industry regulator, said that firms are "falling short" on performance measures around leakages, supply and reducing pollution.
It said that following a review, millions of pounds would be returned to households by cutting bills.
Ofwat said in its assessment that not one company reached the highest measure of performance.
Dŵr Cymru, Southern, Thames, Anglian, Bristol, South East and Yorkshire Water fell into the lowest category of "lagging" and the remaining 10 were rated "average". None were considered "leading".
The regulator judges water companies in England and Wales against "stretching" targets set in 2019 for a five-year period.
If they fail to meet targets, Ofwat restricts the cash that they can take from customers.

All but five of the water providers reviewed will have to give money back to customers by reducing their bills in 2024-25, rather than each bill payer getting a lump sum refund.

And of course like so many “fines’ for utilities it just means they have less money for improving their service. Some of course currently pay dividends and this will put pressure on them. Another reason for avoiding all of them
.
Dod

[88V8]

With SSE's impending dividend cut, it will likely get replaced in my pseudo-HYP with another share from the "Utilities" (Electricity, Gas, Water and Multi Utilities, Waste and Disposal Services) sector.

Water companies? Now?? Pfft.
I'm not even buying any more of Bristol Water's Prefs, and they yield 6.8% and are a jolly sight safer than any ords divi.

One does not have to hold all sectors all the time.
Luni used to call that 'sectoral philately'.

V8

[Newroad]

Morning, V8.

Yet Luni, I understand, had a method (or methods) yet would criticise others for the same? Or are his thoughts possibly being taken out of context?

As it happens and I have mentioned elsewhere on the site, you get most of the bang for your diversification buck getting up to 8 out of 11 sectors. Further, there is no doubt the odd sector is difficult to fill from the FTSE 100 using certain methods. However, if I'd taken the easy route on that front and ignored the problem for my pseudo-HYP, I wouldn't have invested in SGE, which turned out to be one of my better performing stocks (and similarly, BAE as a technology proxy).

Perhaps instead, it would be better to consider my later question (repeated for convenience)

"... the market should be a discounting mechanism. If so, whilst there is political risk, there should also be upside risk of the political risk not manifesting, or not manifesting as severely as it might.

Or is many of your basic premises that the market is missing the point and not (adequately) discounting the political risk?"

rather than a vicarious ad hominem approach?

Regards, Newroad

[Arborbridge]

The trouble with LMF is that I read posts - and get worried. I wasn't worried previously. I hold UU. and have done since I started building my HYP in 2006-7 and until today why would I have been worried? It's delivered a reasonable dividend, the amount of which has been rising, it's given me an XIRR return of 7.99% to mid-year - though that might be less if the price has sunk now.

So, what a dilemma. Perhaps I should stop reading? Perhaps I should take what seems to be sage advice and sell before it is too late? Perhaps I should ignore all that and point out that UU. has been under political threat every since I bought it? I suspect the "sage advice" would have been similar for all those past 16 years when I've had quite a good run.

Perhaps I should sell it, but an IT and let someone else do the worrying?

Or in the words of our Eurovision entry: "Instead I wrote a song".

Arb.

[Itsallaguess]

Perhaps I should sell it, buy an IT and let someone else do the worrying?

All I can say to that Arb, is that since moving away from single-share income-holdings and into a broad range of global-market collective IT's for my long-term income-strategy, the level of forced and unforced portfolio-interaction that I previously experienced has quite literally dropped off a cliff over recent years, and the removal of those previously irritable processes has been one of the very welcome highlights of my change in strategic approach to income-investing.

I only wish I'd done it sooner...

I wouldn't go so far as to say that there's quite often a certain level of sado-masochism to HYP investing, but it's probably not too far off...

Cheers,

Itsallaguess

[Dod101]

The trouble with LMF is that I read posts - and get worried. I wasn't worried previously. I hold UU. and have done since I started building my HYP in 2006-7 and until today why would I have been worried? It's delivered a reasonable dividend, the amount of which has been rising, it's given me an XIRR return of 7.99% to mid-year - though that might be less if the price has sunk now.

So, what a dilemma. Perhaps I should stop reading? Perhaps I should take what seems to be sage advice and sell before it is too late? Perhaps I should ignore all that and point out that UU. has been under political threat every since I bought it? I suspect the "sage advice" would have been similar for all those past 16 years when I've had quite a good run.

Perhaps I should sell it, but an IT and let someone else do the worrying?

Or in the words of our Eurovision entry: "Instead I wrote a song".

Arb.

I dare say that Sunak has enough on his plate without worrying about the water companies but the regulator is going to be under pressure to bring the water companies to heel and I think the shareholders' dividends are going to be under a lot of pressure. Some at least of the unquoted ones have already stopped paying dividends. The threat to the dividends and the general moral hazard as we might call it would put me off. It is not a good template for running a business.

Dod

[Newroad]

Hi IAAG.

I hear where you are coming from. My main interaction is 12 purchase points (II's 3rd Wednesday) and 24 measuring points (3rd Wednesday, end of month) for the bulk of our portfolios, most of which have four holdings - two ETF's and two IT's (the kids JISA's have an extra one).

As such, my experimental pseudo-HYP is pretty Mickey Mouse in context. Maybe it serves a good intellectual function for me and discourages idle hands playing with the main portfolios. However, if it were larger in scale, it may instead lead to some stress/irritation along the lines you suggest.

{Arborbridge} I think the real world perspective many have given is useful and may in due course lead to sub-par or even poor performance from water utilities. However, I think there is at least some chance this has been discounted, perhaps too much, so I think there may be mild upside too.

I would keep reading the posts and only worry if you uncover some angle that was materially unknown (not that likely).

Regards, Newroad