The water company has a decent track record of shareholder payouts, and utilities are classic safe-haven purchases in times of economic uncertainty, where earnings and thus dividends are theoretically more secure.
Despite this, I would warn investors to keep their wallets closed for the time being. United Utilities' premium rating -- coupled with the potential effect of forthcoming legislative changes to the water industry -- should steer income investors toward other juicy dividend stocks.
A reliable payout provider
United Utilities' dividend yield has remained well north of the FTSE 100 average for some time now. And City analysts expect the dividend yield for the year ending March 2013 to clock in at 4.6% and move higher over a medium-term horizon, to 4.9% in 2014 and 5.1% in the following year.
On top of the juicy dividend income on offer, United Utilities also provides respectable earnings growth, even if this is forecast to slow in the medium term.
Earnings per share are forecast to rise 14% in 2013 to 40 pence, according to City brokers. A 9% increase is projected for next year, to 44 pence, with an additional 7% jump expected the year after to 47 pence.
A costly pick?
United Utilities does not come cheap, however. It currently trades on a P/E ratio of 18.2 for 2013, even though this is expected to drop to 16.6 and 15.6 in 2014 and 2015 respectively. The rating is also higher than the average forward multiple of 15.8 for the wider utilities sector.
On a separate note, forthcoming legislative changes to the water industry could potentially derail earnings growth on a long-term horizon. United Utilities faces the prospect of heavy industry reforms from regulator Ofwat, which could seriously eat into earnings -- and potentially dividends -- moving forwards.
The pricing mechanisms for the 2015-2020 period are due to be presented next year by the regulator, which could dent share prices as that date edges nearer, and harm revenues over the longer term.
Dive into deluxe dividends with the Fool
Whether or not you already hold United Utilities, and are looking for other lucrative payout plays to really propel the income from your stock portfolio, I recommend you take a look at this exclusive, in-depth report about another FTSE 100 high-income opportunity.
The blue chip in question offers a 5.7% income, might be worth 850 pence versus around 700 pence now, and has just been declared "The Motley Fool's Top Income Stock For 2013"! Just click here to download the report -- it's absolutely free.
Fool contributor Royston Wild has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
More from The Motley Fool
What's Juno Therapeutics Worth to Celgene?
Celgene may be considering a multibillion-dollar bid to acquire Juno.
Why Ascena Retail Group Inc. Stock Plunged 62% in 2017
The parent company of maurices just finished a tough year. Here's what investors need to know.
3 Easy Ways to Invest in India for 2018
Here's how to get access to this exciting emerging market.