United Utilities Group's (LON:UU.) Dividend Will Be Increased To £0.3457

United Utilities Group PLC (LON:UU.) will increase its dividend from last year's comparable payment on the 1st of August to £0.3457. This will take the dividend yield to an attractive 4.6%, providing a nice boost to shareholder returns.

Our free stock report includes 2 warning signs investors should be aware of before investing in United Utilities Group. Read for free now.

United Utilities Group's Projected Earnings Seem Likely To Cover Future Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before this announcement, United Utilities Group was paying out 134% of what it was earning, and not generating any free cash flows either. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

Over the next year, EPS is forecast to expand by 113.1%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 65% which would be quite comfortable going to take the dividend forward.

View our latest analysis for United Utilities Group

United Utilities Group Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2015, the annual payment back then was £0.36, compared to the most recent full-year payment of £0.519. This means that it has been growing its distributions at 3.7% per annum over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

United Utilities Group Might Find It Hard To Grow Its Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. United Utilities Group has seen EPS rising for the last five years, at 20% per annum. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company's future dividend payments.

United Utilities Group's Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for United Utilities Group that investors should take into consideration. Is United Utilities Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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