Could FTSE 100 incumbent United Utilities (LSE:UU) be a shrewd addition to my holdings to boost my passive income stream? Let’s take a closer look to see whether I should add the shares to my portfolio or avoid them.
Water provider
As a quick reminder, United Utilities is the UK’s largest listed water business. It supplies drinking water and wastewater services to 200,000 businesses and 3m domestic households in the North West region of England. It also has an electricity distribution arm as part of the business.
So what’s happening with United shares currently? Well, as I write, they’re trading for 1,119p. At this time last year, the stock was trading for 1,045p, which equates to a 7% return over a 12-month period.
FTSE 100 stocks have risks
The water industry, like many other utility industries, is subject to strict regulatory rules. This regulation could have an impact on profitability, returns, and investor sentiment. For example, United cannot decide to charge what it wants, it must abide by regulation when deciding whether to increase its bills and by how much.
Current macroeconomic headwinds such as soaring inflation, the rising cost of materials, and the cost-of-living crisis could impact performance and returns too. Many people are struggling to pay utility bills and this could result in United’s balance sheet being affected. The cost of maintaining infrastructure linked to water and wastewater assets is costly too and these costs could rise due to the current headwinds noted. I will keep a close eye on these developments but these issues are affecting many FTSE 100 stocks, not just United Utilities.
The bull case and what I’m doing now
So to the positives then. Firstly, I believe United Utilities shares have defensive attributes. This is linked to the fact that water is an essential staple and everyone requires it. Everyone has a water bill they must pay, which includes domestic customers and businesses alike. Demand should not cease, therefore, and this defensive aspect of the shares should boost performance and growth.
Next, I can see United has a good track record of performance. I do understand that past performance is not a guarantee of the future, however. Looking back, I can see it has recorded consistent levels of revenue and gross profit for the past four fiscal years in a row.
United Utilities shares would currently boost my passive income stream. Its current dividend yield stands at a healthy 4%. This is in line with the FTSE 100 average of 3%-4%. I am aware that dividends are never guaranteed and can be cancelled at the discretion of the business at any time, however.
Overall, I believe United Utilities shares could be a solid FTSE 100 stock to help me boost my passive income stream. For that reason I would add the shares to my holdings. I expect to receive consistent returns for the foreseeable future.