United Utilities: High Yield Low Risk Opportunity

Seeking AlphaDividend Ideas | Utilities  | United KingdomUnited Utilities: High Yield Low Risk OpportunityJul. 27, 2020 12:46 PM ET|| About: United Utilities Group PLC (UUGRY), Includes: NGGby: RB EquityRB Equity Long only, value, long-term horizonSummaryRegulated utilities, purchased at fair prices, can be good substitutes for fixed income.
A good regulatory outcome puts United Utilities in a good position coming into the next 5-year regulated price period.
The almost 5% dividend yield on United Utilities is strongly supported for the next five years given good regulatory outcomes.
United Utilities (OTCPK: UUGRY) ("UU") is a UK water company that has paid consistently high dividends, currently yielding near 5%. In the UK, utilities go through price reviews every five years, and United Utilities, given the positive regulatory outcome late last year, looks almost certain to be able to continue to be a high-yielding low-risk position.
I have been following UK utilities for about five years. I purchased and held two ADRs which I consider a substitute for fixed income allocation in my portfolio. The regulated nature of the sector makes these stocks (if purchased at reasonable price) a lot less risky and given how low interest rates have gone, may represent a suitable alternative to those investors willing to tolerate some volatility.
Data by YCharts
As we all know, rates are at painful historical lows. The CBOE index on ten-year treasury shows yields below 1% and guarantees a loss to inflation. A quick note on the scale of this index, a 32 level on y-axis equals a 3.2% yield on this index - the current reading indicates a yield of only 0.59%.
As the graph below will show, the yield pick-up has been 450 to 600 bps on average; which is very attractive compared to developed government bonds. Stock values have held up well even in current recession, as is expected out of well managed utilities.
Keep in mind these investments will never be great compound... Read more

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