Severn Trent share price up as group announces new dividend policy and share buyback

on Jan 28, 2015
Updated: Oct 21, 2019
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Severn Trent’s (LON:SVT) share price rose today after the British water supplier announced that it had slashed its dividend for the next financial year but will launch a £100 million share buy-back programme to reduce its gearing ratio. According to a group statement, the board has resolved to set dividend at 80.66p for the 2015/16 financial year, a five percent decrease on the current-year total of 84.9p.

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The water utility further revealed that it would join peers United Utilities (LON:UU) and SSE (LON:SSE) in increasing dividend by at least the inflation rate, as measured by the retail price index (RPI), until March 2020. The move is a downgrade from the current policy of paying RPI plus three percent and will, according to the statement, help the utility maintain its credit rating and cut bills in real terms over the next five years.

According to Severn Trent’s estimates, water bills will be “around £60 below the industry average” by 2020, with the average bill next year falling to £329 from £333. In December, industry regulator Ofwat announced that the average household water bill would fall by more than five percent, or by around £20 from £396 to £376, over next five years.
Severn Trent is also planning a £100 million share buyback as part of a move to increase to 62.5 percent the proportion of net debt to its water business’ regulated value, up from 58 percent. The statement said: “The Board believes that this financing plan and new dividend policy are commensurate with a sustainable investment grade credit rating.”

In a separate statement today, Severn Trent said that new chief financial officer James Bowling would join the company on March 16 and then take on the role on April 1, after a handover period with current CFO Mike McKeon. The latter will remain with the business until May to assist Garfield with “the delivery of key strategic projects”.
Severn Trent’s shares have been trading higher so far today. As of 14:36 GMT, the stock stood at 2,163.12p – 0.56 percent up intraday. According to the Financial Times, the 14 analysts projecting 12 month price targets for the FTSE 100-listed retailer have a median target of 2,045.00p, with a high estimate of 2,250.00p and a low of 1,730.00p. As of 24 January 2015, the consensus forecast amongst 29 polled investment analysts covering Severn Trent had it that investors should hold their position in the company.
As of 15:11 GMT, Wednesday, 28 January, Severn Trent Plc share price is 2,166.50p.

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