Severn Trent will cut payouts to shareholders to guarantee lower household water bills following demands by the regulator.
The company, which supplies water to 4.2m homes and businesses across the Midlands and central Wales, said it would cut its dividend for the next financial year to March 2016 by 5% to 80.66p
It is also scrapping its policy of inflation-busting dividend increases over the long-term to save cash. Until 2020, the annual dividend paid to shareholders will increase at no less than the rate of retail price inflation.
Previously shareholders got a better deal, with dividend growth equivalent to retail price inflation plus 3% – a policy which will run for the last time during the current financial year to the end of March.
The company said that by paying less to shareholders, water bills would fall in real terms for the next five years to around £60 below the industry average. Next year average Severn Trent bills will fall by £4 to £329.
Liv Garfield, chief executive, said: “At Severn Trent we always seek to strike the right balance between the service customers receive, the bills they pay, and returns to investors and we believe our plan for the next five years achieves that balance, delivering better services, better value and a healthier environment.
“The price review has been a challenging process but has led to a great outcome for customers.”
Jonson Cox, Ofwat chairman, said at the time: “This is an important step in maintaining customers’ trust and confidence in the water sector. We are bringing down bills so customers can expect value for money, while investors can earn a fair return.”
Severn Trent also announced a £100m share buyback programme. The company said its plans would help it maintain a sustainable investment grade credit rating.
Severn Trent has pledged to invest £6.2bn over the next five years to improve its service. Targets include fixing 100% of visible leaks within 24 hours and reducing interruptions to water supply by more than 50%.
Severn Trent was one of the FTSE 100’s biggest risers on Wednesday morning, up 1.5% at £21.83.
