3 Steady Eddie Dividend Stocks

A significantly overvalued equity may cut its dividend, and a dirt cheap stock with an attractive yield is simply a illusion of maths

Emma Wall 6 December, 2018 | 8:38AM

National Grid electricity article dividend paying stocks equity income

Looking for dividend payers unlikely to slash pay-outs? A significantly overvalued equity may cut its dividend should the share price revert to fair value, and a dirt cheap stock with an attractive yield is simply a illusion of maths. So we screened for UK stocks with a dividend yield of 3% or more and that is trading on our around fair value.

We also ensured Morningstar equity analysts felt the fair value estimate uncertainty rating was low – to minimise surprises. These are the three companies which made it past the filters.

National Grid (NG.)

No great surprise that two out of three of our steady dividend payers are utilities stocks – often called bond proxies because of their reliable income stream, but lack of share price growth.

National Grid is currently yielding 5.4%, and the shares are trading a little above their fair value estimate, earning the stock a two-star value rating. Morningstar equity analyst Tancrede Fulop says the utility firm is acting now to future proof earnings – National Grid's investments in aging energy transmission networks and renewable energy requirements in the US and UK will drive earnings growth.

But there are risks on the horizon; the Labour Party has pledged to natonalise Britain’s energy networks if they win the next general election and operating profits were down in the most recent results.

Unilever (ULVR)

With 58% of reported sales derived from emerging markets in 2017, Unilever has one of the largest EM footprints of all the global consumer staples manufacturers, which should be a long-term volume driver for the business. And they are growing this market, with a recent acquisition of GlaxoSmithKline’s health food drinks business which generates 90% of the business' turnover in India.

The company is slightly undervalued by Morningstar equity analysts’ estimates, at £42.41 per share to the fair value of £46.50. The dividend yield is 3.19%.

United Utilities (UU.)

United Utility's balance sheet is filled with cheap debt financed for 30 or more years, which should boost returns on equity for many years. Regulated operations are improving, increasing the likelihood that the water utility will meet regulatory incentive targets. This should reduce the likelihood of incurring regulatory fines.

But for this two-star stock – meaning it is slightly overvalued – much like as for National Grid, there are political concerns. There is risk of a nationalisation of water networks if the Labour Party wins the election.

The stock is currently yielding 5.18%

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
National Grid PLC776.40 GBX2.33
Unilever PLC4,212.00 GBX0.05
United Utilities Group PLC746.60 GBX0.40

About Author

Emma Wall

Emma Wall  is Senior International Editor for Morningstar