Severn Trent's Special Dividend

Occasionally companies pay a special dividend, an extra payment over and above the half year and full dividend.  On June 20th Severn Trent are to pay a special dividend of 63p a share on top of their normal dividend of 42.06p.  Anyone looking to take advantage needs to buy the shares before they go ex-dividend.  However, upon paying the dividend the shares of companies will often fall in the immediate period after to reflect the payment and the fact that the company is now worth (slightly) less.  Whether Severn Trent falls by over 100p once it goes ex-dividend remains to be seen, but the chances are that there will be some short term fall out.  Potential buyers should note that since April 10th the shares have increased in price from around 1500p to almost 1750p today, the recent high being 1812p, so there is a fair degree of good news already in the price.

Severn Trent has also seen profits slip this year, in a large part due to it selling off its Italian and Spanish water services business.  Profits came in at a pre-tax £156.7million, take away the Spanish and Italian sell off and it is estimated it would have been £288.6million.  So, once things settle down Severn Trent should probably expect its profits to continue the somewhat up and down but mainly increasing trend of the last 5 years.

Yearly pre-tax profits


Mar 08 £192.40 million
Mar 09 £167.60 million
Mar 10 £334.40 million
Mar 11 £253.00 million
Mar 12 £156.70 million

Dividend Yield for the same 5 years has been 4.6%, 6.8%, 6.1%, 4.5% and 4.5%.

However, buyers will pay at the current price a pumped up, at least for a water company, P/E of 17.4.  Back in 2010 it was 9.7.  At the moment this P/E is similar to other companies in the utilities sector, but suggests that the city is prepared to pay a premium for such companies at least for now.

On the monthly chart Severn Trent has been in an upward trend since November 2009 when the share price bottomed out at around 950p.  That trend is still up, but buyers could be buying into a late rising trend which could turn down.  The good thing here is that as this is on the monthly chart the turn to a downtrend is likely to be reasonably slow, barring some dramatic bad news about the company or an event that leads to a major market correction.

Further article worth a read.


http://www.telegraph.co.uk/finance/markets/questor/9329899/Questor-share-tip-Severn-Trent-is-a-hold-despite-special-dividend.html

Data from DigitalLook.

Severn Trent Monthly Chart