As Keith Haslett, the new chief executive of South West Water owner Pennon, recently unveiled a £550 million investor cash-call after being hit with a fine for repeated sewage spills, Dan Coatsworth, head of markets at AJ Bell, says investors will not appreciate the company’s proposed dividend cut.
He said: “Pennon shareholders have been delivered a blow after the water company slashed its dividend.
“Investors typically buy shares in utility companies for their dividends, seeing them as a reliable source of income and a bit of capital growth on top. Pennon has rebased its dividend by approximately 30 per cent from the previous year, saying it will now target growth in line with inflation from the new lower level.
“Investors are not going to like this news one bit, particularly as Pennon has gone cap in hand to ask them for more money. It is conducting a £550 million rights issue to help fund its investment programme to upgrade water infrastructure. While that should be to the benefit of the company longer term, many investors will only care about how much dividend cash goes into their pocket today.
“Off the back of millions of pounds of fines linked to Pennon-owned South West Water and its poor water quality and environmental damage, it’s possible that some people will take the dividend cut as the final straw and close the taps on this investment.”
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