Dividend income isn’t guaranteed, so I’m targeting the best stocks and safest yields I can find. Here are three of my favourites.

Right now, I think the GlaxoSmithKline (LSE: GSK) dividend is hard to beat. That may seem odd, given that the payout has been held at 80p for several years. But, incredibly, this FTSE 100 stalwart now yields 6.55%. That’s the highest I can remember, while its valuation of 10.69 times earnings is the lowest.

Three of the best stocks for income

The Glaxo share price has performed horribly lately, falling 25% in the last year. It still trades slower than five years ago. The pandemic has hit sales of key shingles vaccine Shingrix, as people avoid seeing the doctor except in emergencies. Glaxo’s drugs pipeline sorely needs replenishing

Turning Glaxo around could take time. But you get income while you wait and this remains one of the best dividend stocks on the FTSE 100. I’d buy and hold for the long-term, to give it time to overcome short-term challenges.

Mining giant Anglo American (LSE: AAL) has a humdrum yield by comparison. at 3.16%. But that’s partly down to its blistering share price performance. The stock is up 34% over the last year, and 540% over five years. Despite this, it doesn’t look too overvalued, trading at 14.04 times earnings.

FTSE 100 dividends for my retirement

There’s growing talk of a commodity supercycle, as economies burst out of lockdown and we all enjoy a so-called ‘Roaring Twenties’. 

It’s an exciting prospect, although nothing’s baked in. Mutant Covid could slow the recovery. Also, the mining sector is notably volatile. Companies over-extend themselves in the good times, and pay the price in the bad. However, if the economy does roar, I’d expect the Anglo American share price and yield to join in the fun.

As both stocks involve a bit of risk, I’m playing relatively safe with my third choice by picking water and waste management company United Utilities Group (LSE: PNN). This stock yields a highly attractive 4.61%. And the dividend should prove pretty stable, given that its earnings are set by its regulatory plan with water regulator Ofwat, which has four more years to run.

Trading at 14.56 times earnings, the United Utilities share price looks attractively valued. The pandemic has hit household and commercial water consumption, and could lead to a rise in customer bad debts. But, so far, the damage has been minor. That could change, of course, once government support programmes end.

But I still reckon this is one of the best stocks on the FTSE 100 for passive income.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

We live in uncertain times, but history shows this is often the best time to invest in UK shares. If you wait until the post-Covid recovery is locked in, then you will have missed a great buying opportunity. Here are three FTSE 100 stocks I’d consider buying today. They should generate a rising, passive income to help fund my retirement over time.

Earn passive income in retirement

Shares in plumbing and heating products distributor Ferguson (LSE: FERG) are a play on the US recovery, because that’s where the company makes its money. This could be good news as President-elect Joe Biden pumps up the economy with yet more stimulus. The Federal Reserve looks set to remain dovish even when inflation picks up.

The Ferguson share price has climbed in a straight line since the March crash, more than doubling since then. Yet it still yields a decent 2.25%, beating many top UK shares. Last month it posted 12% growth in first-quarter trading profit to $504m, showing resilience. Ferguson is flush with cash after selling UK operation Wolseley for £308m, and looks set to reward shareholders with a special dividend. It does that from time to time.

The big UK supermarkets have emerged from the pandemic with improved reputations after keeping us fed and watered. The sector may struggle to deliver meaningful share price growth over the longer run, but Morrisons (LSE: MRW) makes up for that by paying attractive dividends. The FTSE 100 stock is now forecast to yield 3.9%, covered 1.9 times by earnings. While some UK shares have stopped payouts in the pandemic, this one hasn’t.

Today could be a good time for me to check out the Morrisons share price, as it trades at a relatively cheap 12.9 times earnings. It has been outpacing its rivals, too. Latest sales figures from Kantar show that December was the busiest month ever for British supermarkets. Morrisons led the charge, with sales up 13.1% over the 12-week period, beating next-placed Tesco, where sales rose 11.1%. 

I’d buy these UK shares for dividends

I particularly favour utility stocks for income. Water company United Utilities Group (LSE: PNN) doesn’t disappoint me, currently yielding 4.5%. Management showed its commitment to shareholders in November, hiking its dividend despite reporting a 16% fall in first-half underlying profit after tax to £174m.

This reflects new price controls, which all but guarantee a steady income stream. One worry is that bad customer debts may increase as the pandemic inflicts damage on incomes. Otherwise this stock offers security. The United Utilities share price is hardly overpriced, trading at 14.9 times earnings, making it cheaper than many UK shares.

Its current regulatory plan with Ofwat runs until 2025, so there are no regulatory concerns for several years. This looks like a solid way to build a passive income stream in the run up to me retirement and beyond.

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Dividend stocks are so attractive because they don’t just give you a regular income, but a rising income, as companies aim to increase their payouts over time. This will help your spending power keep up with inflation. By contrast, money held in cash is likely to erode in real terms. The following two FTSE 100 utility company stocks look dependable income bets for my portfolio.

Water and wastewater specialist United Utilities Group (LSE: UU) offers plenty of buoyancy, despite the stock market storms in March. This FTSE 100 stock now trades 5.4% higher than a year ago, against a drop of 15% across the index as a whole.

Shun cash to buy UK shares

This week, it increased its dividend despite a 16% fall in first-half underlying profit after tax to £174m. The profit drop was due to new price controls and increased infrastructure spending. Covid-19 may have an impact if customers will struggle to pay their bills and bad debts rise. This hasn’t happened yet, but 2021 is likely to be the crunch year. Management still believes existing provisions are enough though.

Crucially for those buying FTSE 100 stocks to generate a passive income in retirement, the board increased the dividend by 1.5%. This is in line with its policy of increasing shareholder payout each year, in line with the CPIH inflation measurement.

Right now, United Utilities yields 4.4%, covered 1.5 times by earnings. That’s far more than I could dream of getting on cash. Naturally, shares are riskier than leaving money in the bank, but United Utilities is relatively safe as FTSE 100 stocks go. A P/E valuation of 14.5 times earnings looks tempting to me.

Sticking with the theme, I’d also include water utility and waste management specialist Pennon Group (LSE: PNN) in my passive income portfolio. Again, this FTSE 100 stock escaped the worst of the March crash and trades around 3.5% higher than a year ago.

I’d buy FTSE 100 stocks for income

Pennon has just announced a 14.5% drop in half-year underlying pre-tax profits, to £86.7m. This was expected, as business customers used less water during the lockdown. It’s now flushed with cash after receiving £3.7bn from the disposal of Viridor. The money will allow it to pay down debt, top up its pension scheme, and still have £2.7bn in the coffers.

The downside of the Viridor sale is that Pennon is now dependent on its South West Water business to fund dividends. The yield is forecast will fall from 4.5% to 2.1%, although it will continue to be increased by CPIH plus 2%.

So what will it do with the cash? Buying Southern Water is one option and that would boost dividends. The other is directly returning spare cash to shareholders. Given the uncertainty, of these two FTSE 100 stocks, I’d rather buy United Utilities today. But I’m keeping a close watch on Pennon.

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Now is a good time to do it, as the market is still trading 20% lower than at the start of the year. This means you are picking up top FTSE 100 companies at reduced prices. If current volatility makes you wary, you could target defensive stocks like these two utility giants.

Both companies offer an attractive entry price, and you still get dividends as well. If you buy inside your Stocks and Shares ISA allowance, you can take all your growth and income free of tax.

I’d go for the SSE share price today

Power giant SSE (LSE: SSE) is a top FTSE 100 dividend stock, now more than ever. Although dozens of companies have dropped their payouts, it currently yields a thumping 7.86%.

That is a terrific rate of income, given that the Bank of England base rate is just 0.1%. Utilities are generally seen as attractive stocks to hold in a recession, as they offer basic services that people need whatever the economic weather.

Despite that, the SSE share price is trading around 25% lower than in February, when Covid-19 started to hit the FTSE 100. This offers an attractive entry point for investors looking to access a long-term income stream at a discounted price.

Dividends are not guaranteed, so there is a danger SSE could cut its payout in future. The group’s income has been hit by the pandemic and customer arrears will inevitably increase as the recession drags on. However, SSE still expects operating profits at its core businesses to grow this year, if at a slower pace. No promises, but it looks tempting for now.

Another FTSE 100 income hero

As the UK’s largest listed water company, United Utilities Group (LSE: UU) is fulfilling the most basic of human needs. Its share price has recovered slightly better from the March crash. It is now just 12% below its February peak.

United Utilities is also standing by its dividend, which currently gives you a yield of 4.68%. Before the pandemic, it pledged to increase its dividend by at least the rate of inflation. However, the group is now reviewing its policy for the 2020–25 regulatory period, to assess the impact of Covid-19, which could lead to delayed bill payments as customers struggle.

That surprised investors, who had assumed that its payout was one of the most reliable on the FTSE 100. However, it does have to repay around two thirds of its £1.2bn liquidity this year, while looking to raise a further £500–£800m. If it manages that, the dividend should be safe. I remain hopeful, but there are no guarantees in these strange times.

One option is to divide your money between the two, to spread your risk.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

If things had been different

That was the plan outlined by Jeremy Corbyn’s Labour Party for its first 100 days in power. It was pretty popular among the electorate, although not popular enough, as it turned out.

If the election result had been reversed, FTSE 100 dividend-paying stalwarts such as Centrica and National Grid would be plunging today, as investors waited to see how much compensation Chancellor John McDonnell would pay when he took them into public ownership.

In the real world, the one where Boris Johnson is still Prime Minister but now with a landslide, the Centrica share price is up 7.46%, while National Grid is up 6.94%. For them, it is now business as usual.

Post-election spike

These are not the only utilities flying today. The water companies were also in line for nationalisation, and now they’re not. The result is that the Severn Trent (LSE: SVT) share price is up a whopping 8.24% at time of writing, and United Utilities Group (LSE: UU) is up 7.78%. That is way ahead of the 1.67% rise on the FTSE 100, at time of writing. Clearly, some investors took the prospect of nationalisation seriously. Not anymore.

I would still think twice about rushing to buy them right now, however. That kind of spike often retreats in later trading, as investors pocket their profits. However, the long-term attraction is greater, now that one major area of uncertainty has gone for the foreseeable future.

Power of Severn

The Severn Trent share price has performed particularly well over the last year, trading 17.67% higher, but you cannot expect that kind of return from a utility year after year. What is at stake is the income. Here things look pretty good, with the stock currently yielding 4.5%.

Management is taking a progressive attitude, recently lifting its interim dividend by 7%, in line with its policy of growing it by inflation plus 4%. However, that followed an 11.2% drop in first-half pre-tax profit to £180.7m, which partly explains why dividend cover is relatively thin at 1.4.

The £5.72bn group now trades at 16.6 times earnings, after today’s leap, so looks fairly valued rather than a bargain play. Business costs are mounting, while City analysts are predicting a 7% drop in earnings this year and a drop of 18% the next. The nationalisation threat may have passed, but Severn Trent still has other issues to deal with.

United we fall

Today’s jump in the United Utilities share price is welcome given that it has gone nowhere for the past five years. I have previously warned that the UK’s largest listed water company has a massive debt pile of £8.8bn, although management says this is within its target range.

The £6.2bn group now trades at 15.1 times earnings, pretty much fair value, while offering a generous forecast yield of 5%, although again, cover is thin at 1.3. However, with earnings forecast to fall 26% next year, I’m getting cold feet.

Loyal investors are enjoying themselves today, but the future could be patchy. I would put these two on my watchlist, now the nationalisation threat has receded, but I wouldn’t buy them yet.

The post These 2 FTSE 100 utilities soar as Labour loses. Should you buy them? appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

There is something else you need to watch out for. Nice, safe, solid, dividend-paying FTSE 100 stocks, that have a dark side. Like these two.

National Grid

Transmissions giant National Grid (LSE: NG) is traditionally seen as one of the safest income plays on the FTSE 100. The group provides the network of pipes and wires that sends energy fizzing around the country to our homes and businesses, and does a similar job in the Northeastern area of the US.

It operates in a heavily regulated sector, which keeps a tight lid on its profit potential but helps deliver secure cash flows. Right now, the £31bn behemoth offers a forecast yield of 5.4%, higher than the current FTSE 100 average of around 4.7%. Dividend cover looks low at 1.2 times earnings but that is less of a worry for a utility, as they should suffer fewer profit swings.

You cannot expect that much from the National Grid share price, which trades at roughly the same level it did five years ago, and is valued at 15.4 times earnings. National Grid can even soothe your Brexit fears, Royston Wild reckons, as the UK’s growing population will need electricity deal or no deal, plus it enjoys US revenues.

Now here’s what scares me. The general election campaign is clicking into gear, and if Jeremy Corbyn’s Labour triumphs, it plans to bring National Grid under state control, with investors handed government bonds at a price determined by Parliament.

Labour are polling poorly but anything could happen, so the spectre will hang over National Grid until 12 December. The stock could enjoy a sharp relief rally next day if the Corbyn shadow recedes, so if you’re feeling brave, or don’t fancy Labour’s chances, now could be a good buying opportunity. Otherwise you risk buying a zombie stock.

United Utilities

The shadow of renationalisation also hangs over water company United Utilities (LSE: UU), as the company has acknowledged itself. It stated in May that reversing privatisation “is a key area of uncertainty”, and warned that it “could be acquired below fair market value”.

Like National Grid, the UK’s largest listed water company is trading at similar levels to five years ago, despite a 16% rise in its share price this year. Similarly, the United Utilities share price is trading at a fair valuation of 15.2 times earnings. The forecast yield is 4.9%, covered 1.3 times by earnings.

That looks nice and solid but there is another concern, aside from nationalisation. United Utilities has run up a whopping £8.68bn debt pile, far greater than its market cap of £5.87bn, while dwarfing last year’s underlying operating profit of £645m. Its recent increase was down to a repayment to its pension scheme and the impact of new reporting standards.

Management says gearing is comfortably within its targeted 55% to 65% net debt to regulatory capital value range, but if servicing becomes tricky at some point, the dividend could come under threat.

Maybe Halloween is making me nervous, but if I’m going to invest in a stock as dull as this, I don’t want any nasty surprises.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

As well as being one of the largest mining businesses, the company is also one of the largest commodity traders. This means the group is responsible for getting commodities, such as iron ore, copper, coal and oil, from where they’re produced to the end consumer, a hugely complicated process that requires lots of planning and infrastructure.

There are only a handful of companies that are geared up to take on these challenges on such a large scale. Glencore is the biggest. 

As the global economy continues to expand, demand for Glencore’s services should only increase, and that’s why I’m recommending the stock as an income investment. Shares in the company currently support a dividend yield of 6.3% and trade at a forward P/E of 9.5 for 2020, based on current City estimates. 

Current projections suggest the dividend yield will be covered 1.8 x earnings per share next year. 

Special dividend

Another blue-chip stock yielding more than 5% that currently looks interesting as an investment is retailer Morrisons (LSE: MRW). A few years ago, the supermarket group was struggling. Morrisons, alongside the rest of the sector, was finding it tough to compete with the rise of the low-cost German discounters. While this threat hasn’t vanished, Morrisons has been able to win back customers by offering a better service at a similar price.

These efforts are now starting to pay off handsomely. The group reported stronger-than-expected profits for the six months to 4 August of £198m off the back of a 0.4% increase in total revenue.

Management was so pleased with these numbers, it decided to declare a special dividend of 2p per share. If this trend continues, City analysts believe shares in Morrisons will yield a total of 4.8% in its current financial year, rising to 5.1% for fiscal 2021.

With the payout covered 1.5 times by earnings per share as well, it looks to me as if management has plenty of room to increase the payout further from current levels as well. 

Undervalued income

The final FTSE 100 dividend stock I’m going to highlight is water supply United Utilities (LSE: UU). Threats from Labour leader Jeremy Corbyn to nationalise utility suppliers if he comes to power have weighed on the share prices of all utility companies over the past few years. However, I think there’s actually quite a small chance this will ever happen. Corbyn wants to nationalise utilities, but doing so would require the support of the courts as well as parliament, which he’s unlikely to have.

On this basis, I reckon it’s worth taking advantage of the negative market sentiment to snap up shares of undervalued utility companies.

Today, shares in United offer a dividend yield of 5.3%. The distribution is covered 1.4 times by earnings per share, so it looks as if it’s safe for the time being. Historically, the company’s dividend yield has averaged around 4.5%, which implies the stock is undervalued by nearly 18% at current levels. 

The post 3 FTSE 100 stocks with dividends over 5% I’d buy today appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

It always seemed as if the share prices of the utility firms would be unlikely to cause too much trouble during a long-term holding period — therefore, we thought, we’d invested in a low-risk compounding machine, and all we had to do was periodically reinvest the dividends and wait for a happy and prosperous retirement.

Big questions

But I don’t think it is as simple as that now. A number of big questions hang over the utility sector that challenge our previous cosy assumptions. Firstly, there’s the large pile of debt that many utility companies carry. Capital-intensive operations in the sector require huge amounts of money to develop and maintain, and utility companies have turned seeking, managing and servicing borrowings into an art form. United Utilities, for example, revealed in today’s half-year results report that its gross borrowings stand around £8.68bn, which compares to last year’s underlying operating profit of £645m – the figure for debt is large, and the sheer quantity of words dedicated to talking about borrowings in today’s report underlines how big an issue it is for the firm.

Of course, there’s nothing new about utility companies running up large piles of debt, but the regulators have been cranking up the pressure on firms such as United Utilities. It wouldn’t take much to tip the balance so that the big figures of revenue and costs fail to produce enough of the little figures for free cash flow and profit. If that happens, the directors could face hard choices between servicing the interest on borrowings or servicing shareholders with a dividend. Perhaps they could end up with a situation where they can’t service both. If that happens, expect dividends to be cut and share prices to fall.

Yet debt and regulatory risks aren’t the only things to worry about. I reckon there’s also a lot of political risk hanging over the utility firms at the moment. Labour and the Conservatives seem close in the polls and the next general election could see a Labour government – one that has pledged to nationalise utility companies. If that happens, I certainly wouldn’t want to be holding shares in any firm that falls in the crosshairs of politicians in power who want to ‘get even’ with ‘greedy’ capitalist directors and shareholders!

Good figures

Despite my reservations, today’s figures are good. Revenue for the first half of the firm’s trading year rose 4.6% year-on-year and underlying earnings per share shot up almost 23%. The directors pushed up the interim dividend by 3.9%. At the recent share price of 775p, the forward dividend yield for the trading year to March 2020 runs around 5.5% with the payment covered almost one-and-a-half times by anticipated earnings. If you are comfortable with the over-arching risks and uncertainties, the yield looks attractive. But, to me, it’s a big ‘if’.

The post Is the 5% dividend yield from the FTSE 100’s United Utilities Group worth having? appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

In my view, this is one of the most attractive income stocks in the FTSE 100 because it is one of the market’s most defensive businesses.

Time to buy?

That being said, the company is not without its problems. Analysts are worried about the impact increased regulation will have on earnings and management believes the group will see a 10.5% reduction in average bills between 2020 and 2025, which will certainly put pressure on margins.

However, despite this mixed outlook, the City is forecasting impressive earnings per share (EPS) growth of 15% for the financial year to the end of March 2019. EPS are expected to jump a further 10% the following year.

As well as earnings growth, the company’s dividend is also expected to increase in the years ahead. Although analysts believe payout growth will be limited to between 1.7% and 2.9%, current forecasts indicate a prospective dividend yield of 6% for fiscal 2020. 

So, even though United’s outlook is mixed, I believe the company’s dividend credentials more than make up for the additional uncertainty.

Inflation protection 

Anglo American (LSE: AAL) is another dividend champion that I believe could help you double your income in retirement. 

Anglo operates in a different sector to United, but both companies have similar favourable qualities. 

For example, income at both is linked to inflation as commodity prices have historically increased in line with inflation. What’s more, as the world economy and population both grow, demand for commodities will only expand. In fact, you could argue that Anglo is a defensive business for this reason. The firm’s position in the copper industry is particularly attractive. As the world becomes ever more connected, demand for copper is set to explode. 

What I really like about Anglo right now is its low valuation. The stock is currently trading at a forward P/E of just 9.2, which gives a wide margin of safety in my opinion. On top of this, there’s a dividend yield of 4.7% on offer and with the payout covered 2.3 times by EPS, leaving plenty of scope for dividend growth in the years ahead. 

Margin of safety 

My third and final pick is Kingfisher (LSE: KGF). Even though this company has fallen on hard times recently, its dividend credentials are some of the best around. 

The payout is covered 2.2 times by EPS and the current yield is 4.2%. What’s more, there is no debt on the balance sheet — the company has a net cash position of £92m. This cash cushion gives me confidence that management can maintain the dividend at its current rate even if earnings fall. 

Unfortunately, EPS are expected to tick slightly lower this year, falling by 2.2% to 23.8p. However, analysts have pencilled in growth of 19.3% for the following year, which if achieved, will leave the shares trading at a forward P/E of just 9. If the firm meets or beats this target, I believe the shares should re-rate as investor confidence returns. 

Personally, I think Kingfisher’s stock is great value at current levels and shareholders could see a substantial upside if the company is able to return to growth.

The post Three FTSE 100 income champions to help you double your State Pension appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Lacking power

The £26.5bn FTSE 100 company is still in bargain territory judging by its P/E ratio, trading at a forward valuation of 13.9 times earnings. However, its share price trades 27% lower than two years ago, and those who think of utility stocks as defensive plays really need to think carefully about what that term actually means.

Unlike many domestic utilities, National Grid boasts a thriving US business, which offers some relief from domestic concerns such as Brexit, customer anger over rising energy bills and renationalisation threats from a resurgent Labour party.

Nationalised Grid

Jeremy Corbyn’s threats to take utilities back into public ownership are weighing on National Grid , even though its CEO has claimed it would cost a whopping £100bn. As yet, shareholders have no idea what compensation they would get if that happened. As the Conservatives flounder and Labour confidence seeminglygrows, these concerns may continue to weigh.

In the current fraught environment, Government and regulators feel the need to bare their teeth with Ofgem seeking £5bn of savings through tougher price controls for energy networks. This has already hit National Grid’s bottom line, as the regulator is using a tougher benchmarking approach on its grid upgrade to connect the new Hinkley Point C nuclear power station.

High yield

The recent profit warning from Big Six power giant SSE has further dented sector confidence, while National Grid’s hefty debt-to-equity ratio of 120% could weigh on it if interest rates continue to rise.

In return for all these worries investors also get an electric yield of 5.7%, with cover of 1.3. The dividend is forecast to hit 6.1% in early 2020, and today’s cut-price entry point still looks tempting.

United we fall

United Utilities Group (LSE: UU) has had an even stickier time, the share price dropping 30% in the last two years. With a forecast yield of 5.8%, covered 1.3 times, and a valuation of 13.7 times earnings, its profile looks remarkably like National Grid’s.

Once again, the £4.72bn group has also been hit by the threat of Corbyn as Prime Minister and a potential Chancellor John McDonnell, who last month mooted spending £80bn bringing the water companies back into public ownership run by local councils, workers and customers.

Squeezed dry

United Utilities is also facing a cost squeeze, recently stating that it is planning for a 10.5% reduction in average bills between 2020 and 2025. It also had to invest £80m to help it to safeguard water supplies and protect resources during the dry summer.

Encouragingly, the most recent UK Customer Service Index placed it top among all water and wastewater companies, while City analysts are forecasting healthy 15% earnings per share growth in the year to 31 March 2019, then another 10% the year after. By then, the yield should hit 6%. So we have two great income stocks, yet both carry a worrying measure of political uncertainty.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.