United Utilities increases dividend despite inflation squeeze

United Utilities have once again increased their payouts to investors through an increase in the ordinary dividend, but does so at a time inflation squeezes the company’s earnings.

United Utilities reported an increase in revenue to £932.3m in the six months ended 30th September, up from £894.4m in the same period last year.

This helped increase operating profit by 4.4% to £332.8m but underlying earnings per share fell to 28.4p from 29.2p as increased costs on inflation-linked debt eroded the bottom line.

Despite pressure on earnings, United Utilities increases their interim dividend by 0.6% to 14.50p.

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“The return to the office meant United Utilities saw overall consumption rise. While fewer people at home meant residential revenue was down, it remained above pre-pandemic levels suggesting this hybrid-homeworking environment will be a net positive for UU,” said Laura Hoy, Equity Analyst at Hargreaves Lansdown.

“However, inflation took a bite out of profits in more ways than one. The group saw core costs rise and is expecting this trend to continue through to the full year. More concerning was an increase in net finance costs. A portion of United Utilities’ debt is linked to inflation, and the sharp increase in consumer prices this year meant it rose substantially. This burden together with a one-time tax charge meant the group’s bottom line was in the red.”

“This isn’t necessarily a long-term trend to worry about. If inflation does ease as many are predicting, this should be a blip on the radar. And in any case the group’s revenues should be inflation linked. However if this new level is sustained it will chip away at United Utilities’ balance sheet.”

United Utilities CEO, Steve Mogford, highlighted the real terms reduction in household bills when taking into consideration inflation and provided comment on their push to net zero by 2030.

“At a time when many families are struggling with a higher cost of living, we have reduced typical water bills forhouseholds in our region by 6 per cent in real terms over the last two years. We’re also offering more help thanever before for vulnerable customers and households that are struggling to pay,” said Steve Mogford.

“Climate change and population growth are challenges we must all confront, and we will continue to invest tomake our services more resilient and strengthen our ability to respond to, and recover from, extreme weather events. Our £2 billion investment programme will also help our region’s economy to grow, generate jobs anddevelop skills in our communities.”

“We’re committed to delivering our six carbon pledges, which will help us achieve our ambition of net zero by 2030. We have already delivered our pledge to source 100 per cent of our electricity from renewable sources. As well as reducing our carbon footprint, we are committed to protecting the natural environment and ensuring no net loss of biodiversity.”

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