1 high-yield dividend stock worth buying right now

When it comes to dividend stocks, perhaps the most important consideration is whether shareholder payouts have the potential to grow.

And one name performs well in this dividend United Utilities (LSE: UU), a UK-based water and wastewater company. I think it’s worth digging into now.

Dividends are set to rise

United Utilities directors have increased their dividend every year since at least 2017, including through the pandemic. And City analysts are predicting a rise of almost 5% for the current trading year to March 2023, followed by a rise of around 8.5% for next year. Meanwhile, the annual share price for 2.3 %.

The share price is close to 1,060p as I write. And that makes the expected dividend yield at just below 4.7% for the year to March 2024. So there is potential for both growth in payments and a decent level of yield ahead.

But despite the firm and defensive nature of the business, it is not without challenges. For example, November’s half-year figures show a complete collapse in earnings over the period. And the problem has to do with the pile of debt the company carries on its balance sheet.

The company attributed the higher inflation in debt to the index “affected” earnings. And the effect is an underlying loss of 1.8p per share in the six months to 30 September 2022 – ouch! Change in share price 28.4P for the same period last year. So that goes to the loss quite a thumper.

But it’s not unusual for utility companies to have a lot of debt. And most of these companies issue a mix of fixed-rate and floating-rate bonds to structure debt. But United’s results show that inflation-linked index debt could cause difficulties. And that is especially true when the inflation rate shoots the lights out as it has done recently.

Stable cash flow

However, inflation seems to be falling again. So earnings can recover in the future. In fact, City analysts are predicting a return to profitability for the trading year to March 2024.

Meanwhile, through all the ups and downs of the company’s earnings, cash flow remains fairly stable. And that’s why shareholder dividend payments don’t appear to be threatened by the wild ride businesses are taking with earnings.

United Utilities enjoys a regulated monopoly position in the market. And that’s attractive. However, that privileged position comes with tough regulatory oversight. And the company has to invest a lot of money into infrastructure and water services on an ongoing basis.

However, despite the risks, on balance, the company’s financial performance is excellent. And the stock seems worth considering now for a diversified long-term portfolio focused on dividends.