Andy Burnham’s name probably hasn’t been used in conjunction with passive income too often — if ever. But there may be relevance if you hold certain dividend-paying businesses that are set to benefit or lose from the likely next Prime Minister.
That prospect now looks nailed on after current PM Keir Starmer just said he will step down. The question now is, which UK sectors and stocks could win or lose from this incoming premiership?
Potential losers
Now, the first thing to note is that we don’t know for certain what the next likely PM will do. But looking at previous comments from Burnham, a couple of key themes stand out. He has mentioned the need for:
- Public control of utilities, citing Thames Water as an example.
- Iincreasing public infrastructure investments, particularly around social housing.
Potential losers then could be water utilities, which Burnham has cited as private sector failures. Rising water bills and, in some instances, sewage being pumped into lakes and rivers haven’t made these firms very popular with the public.
Therefore, it’s entirety possible such utilities could be re-nationalised in future. The water industry in England and Wales was privatised in 1989.
United Utilities (LSE:UU) and Severn Trent (LSE:SVT) are two water stocks from the FTSE 100. They provide water services to approximately 15m customers across certain parts of England.
Of course, nationalising utilities would require legislation and likely be a multiyear process. Acquiring these debt-laded firms would not be straightforward and the policy could be scrapped in 2029 if a different government is elected.
Therefore, the market doesn’t seem overly concerned, as these water stocks have only dropped between 6% and 8% since the end of May. They’re sporting forward dividend yields of 4.6% (Severn Trent) and 4.3% (United Utilities).
Are they worth a look if they keep falling? Potentially, due to their regulated earnings, steady dividends, and defensive profile. That said, they have big debts, long-term growth is limited, and their dividends tend to rise about in line with inflation.
I doubt these FTSE 100 income shares will be derailed. But they’re not on my radar, especially with the added element of uncertainty.
Potential winner
Turning to potential winners, UK construction and infrastructure services group Morgan Sindall (LSE:MGNS) strikes me as a strong candidate. That’s because it generates revenue from public sector work, including affordable housing and property services for social housing.
Its subsidiary Muse specialises in urban regeneration, including town centre transformations of Eccles (Salford) and Wythenshawe (Manchester). Burnham’s old stomping ground.
The FTSE 250 stock has been strong for ages — up 112% since mid-2021 — and last year showed why. The company’s revenue increased by 10% to a record £5,019m, while pre-tax profit jumped 35% to £233m.
Morgan Sindall’s balance sheet is in good shape and the total dividend was hiked 20% to 158p last year. At the current share price, this translates into a 3.3% dividend yield.
A sluggish private housing market amid high inflation and rates adds risk to growth moving forward. But the stock doesn’t look overly expensive at 13 times earnings.
If so-called ‘Manchesterism’ — described as “business-friendly socialism” by Burnham — takes off nationally, then Morgan Sindall should benefit. On this basis, I reckon this dividend stock’s worth a closer look.
Should you invest £5,000 in United Utilities Group Plc right now?
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Ben McPoland has no position in any of the companies mentioned.
