Utilities companies — don’t you just love them?
Well, if you want long-term ISA investments in companies that can pretty much guarantee their income and keep paying some of the best dividends in the market for the next couple of decades and more, you should.
Look at United Utilities (LSE: UU) (NASDAQOTH: UUGRY.US) and its yield of 4.5% per year, for example. That alone beats the pants off any savings account, and if reinvested in shares over a 20-year period it would turn an initial £1,000 into £2,400 — compare that to the £1,300 that a typical cash ISA would get you!
And that’s ignoring any share price rise.
Solid share performance
With a gain of 13% to 794p, United Utilities shares have trounced the FTSE’s 3% over the past 12 months, although that has been a bit of a freak year — the shares tend to match the FTSE fairly closely over the longer term, albeit with a much better dividend than average.
Over 10 years, United shares have gained around 55%, narrowly beating the FTSE’s 50%.
That represents an annual rise of only around 2% per year — but the past decade did include the biggest FTSE crash in recent memory. And if we include the dividends, we’re looking at a very nice record.
In fact, United’s dividend yields have been higher in the past — the share price has caught up a little in recent years. But how might the next 20 years look?
A 20-year investment
Even with just that 2%-per-year price growth (which I think is pessimistic), reinvesting a 4.5% dividend every year on top of that would turn £1,000 invested in an ISA into £3,500 in 20 years. Which is nice.
But might we do even better than that?
The firm’s most recent update this month was upbeat, with this year’s revenue expected to be up on last year and underlying operating profit “anticipated to be moderately higher“. Regulatory capital investment is going well too, and helps provide for the long term. And debt looks pretty stable too.
A firm candidate
All-in-all, United Utilities looks like a good candidate for some of the £15,000 allowance we’re due in July.