When you’ve softened up the market to expect a 10 per cent cut in the dividend, a mere 5 per cent is considered a result. Which is why Severn Trent shares rose last week, as the big water companies capitulated to the demands of the regulator, along with the usual blather about a fair balance between the interests of the shareholders and the customers.

The dividend, in the deathless prose of such setbacks, is to be “rebased”, and look, we’re hoping to raise it in line with the Retail Prices Index every year for the next five. How’s that for sustainability? Of course, the five-year cycle of water regulation does make life harder for the companies than, say, running a bath, but dividend sustainability is measured in decades. Us shareholders like dependable divis. “Rebasing” does serious damage to the idea that the income stream can be relied upon.

Had Severn been under the cosh to protect its all-important credit rating, the cut would be understandable, even sensible. But the company is actually making its capital position worse, by launching a £100m share buy-back programme. The £10m a year saved from cutting the dividend looks hardly relevant by comparison.

The company bangs on about capital efficiency, and the difference between the balance sheet and the p&l, but cash is cash is cash, and paying a dividend has (almost) exactly the same effect on the company finances as a share buyback. The clear winners from this move are the brokers who will handle the trades. There is no mention of price. The intention is to keep buying (prudently, of course) until the money runs out.

Severn Trent is among the best-run water companies and two years ago it fought off a takeover approach at £22 a share, 25 per cent above its previous peak. A combination of good performance and plunging debt costs has finally closed that gap, but the Canadian pension fund that led the charge last time will also have adjusted its target returns to today’s flat-lining interest rates. This ill-judged cut to the dividend may be just what the marauders need to renew their assault.

 

 

Osborne, Osbond, Osbatty

There’s still time, provided that your advanced years allow you to tackle the internet thingy, to get your ration of Osbonds. Every OAP who can find up to £10,000 is eligible, and the three-year version of NS&I’s Guaranteed Growth Bond returns 4 per cent before tax (which will be knocked off at 20 per cent before you see it). Most people who can find the maximum will pocket £320 a year.

This is much more than a mere building society can afford to pay, and much, much more than the government needs to offer for three-year money. Rather than pay 0.66 per cent, our dear Chancellor is bunging hundreds of pounds a year to the middling-affluent oldies. We are not even what might be described as core Labour voters needing to be seduced.

These bonds go with the free bus pass and the £200 tax-free winter fuel allowance. Gratuitous benefits all three, richly deserving of the sort of crackdown being applied to those without jobs. It would serve George Osborne right if in three months’ time, the young rise up and vote him out. The Osbonds should encourage them.

No competition in this game

The backers of the shirts of premier league clubs know their target audience. Not to be put off by the collapse of Alpari, the name on the front of West Ham United’s players, online currency broker Swissquote is to join the fun by sponsoring Manchester United. Quite why people believe they can beat the market playing the foreign exchanges is one of life’s little mysteries, because experience proves they can’t.

This is a game for mug punters, and the professionals on the other side of the trade clearly think the mugs watch the match. It’s not much consolation to learn that Swissquote also paid heavily for its central bank’s decision to free the franc; it lost money because its clients were wiped out before they could be closed out. Just watch the ball instead, guys.

This is my FT column from Saturday

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