Best utility shares to buy uk

By Eleanor Lawrie For Thisismoney. It's a difficult time to be an income investor.

Britain's decision to leave the EU could leave its smaller, domestically-focused companies scrambling to cover their dividends as they gear up to face a potential recession. And Brexit has arrived at a time when UK dividends aren't exactly robust. Several large companies such as Tesco and Standard Chartered took the axe to their dividends last year, while many others also have payouts that have been cut or are under threat.

Without those, the underlying figure fell by 2. What's more, the figures were from the end of June, so did not capture the full impact of the referendum, which only took place a week before the end of the second quarter. Hugh Yarrow is the manager of the Evenlode Income fund , which sits in the top quartile of its peer group over one, three and five years to the end of June.

Over a five-year time period, the fund's shares have risen by His fund has a historic yield of 3. What next for dividends?

Yarrow predicts that the overall level of UK dividend payouts is likely to fall over the next year or two. The manager explains that a variety of factors has led to these cuts, including difficulties in their respective industries, large capital investment requirements, poor cash generation and high debt levels.

Not only has the recent environment proved tough, but the decision to separate from the EU may also affect the UK market's future dividend payments. This is particularly true of domestic sectors, such as banks, commercial property, construction, house builders and retailers - which may find it difficult to sustain or grow dividends.

Mitigating against that is the weakened price of the pound, which should provide a boost to UK nationals using their global cash flow to pay dividends in sterling. Construction is one of the areas that could be hit hard by the Brexit vote.

Which UK companies can investors turn to for income? It's not all doom and gloom.

Top 20 FTSE Dividend Paying Stocks | Morningstar

Despite the clouds gathering on the horizon, Yarrow says that 'many high-quality, market-leading British businesses remain well placed to sustain and grow dividends over coming years'. He has cherry-picked the stocks he thinks can do this over time.

2017 look ahead: why it could be a good year for AIM listed stocks

These 10 stocks come from diverse sectors, including software, food services and recruitment, but they all have a few common traits. Firstly, they all currently provide an initial dividend yield of at least 2 per cent. Secondly, these companies have very strong balance sheets, with six of the 10 boasting no debts at all. They are also self-funding, which means they produce more than enough free cash flow to support future re-investment in the business as well as their existing dividend payments.

The Evenlode Income team is also looking for companies that have long-term growth potential but are 'asset light' - meaning that they only need to invest a relatively small proportion of cash back into the business to generate that growth and thus have more left over to spend on growing their dividend.

The companies in Evenlode's list pay out an average dividend yield of 3. On top of their ordinary dividends, many of the companies have paid out a special dividend in the past, or are well placed to do so in the future.

Interestingly, all but one are global businesses so are set to benefit from a prolonged weakness in the pound. And all but one of the 10 are currently invested in by the Evenlode Income fund - with only Spirax left out for valuation reasons. Founded in Newcastle in the early s, Sage has grown to become the global market leader in the provision of enterprise software for small and medium-sized businesses.

It sells to more than 6million customers in countries. Its products, such as accountancy software, become embedded in the day-to-day running of a business, creating a consistent revenue stream from subscription and support contracts. This revenue is growing steadily and now makes up almost three-quarters of sales.

The company routinely converts profit to cash-flow, the balance sheet is strong. Sage has grown its dividend every year for the last 15 years. Sage's products 'become embedded in the day-to-day running of a business, creating consistent revenue'. Fidessa provides software to investment banks, brokers and asset management firms around the world. The software firm has some loyal customers - a considerable 85 per cent of revenue is recurring, while its renewal rates are more than 99 per cent.

Long-term growth potential is good as Fidessa's customers look to improve efficiency, cope with regulation and compliance, and bring down costs. The company deliberately operates a very prudent balance sheet with no debt and a strong net cash position. Because the company is capital-light, it needs little of its cash flow each year, so free cash flow is regularly returned as ordinary and special dividends. This is a Hertfordshire-based payment technology company, helping consumers pay utility bills, top-up mobile phone credit, pay tax, buy parking tickets and send parcels.

The business has limited capital requirements and its strong free cash flow and net cash balance sheet supports a healthy dividend yield. The management takes a pragmatic attitude to returning excess cash to shareholders and along with growth in ordinary dividends, and recently announced a programme of special dividend payments over the next five years to return surplus cash that has built up on the balance sheet.

It is an economically sensitive business, but as it is an asset-light business, cash generation is strong through thick and thin.

Six of the best shares for dividend income | This is Money

Page Group's management also look to run the business very conservatively over the industry cycle. The company never borrows money, and its growth over the years has been driven by organic expansion rather than by acquiring other companies. This consistent approach has enabled Page to take market share in more difficult times, while continuing to pay healthy dividends too. The current dividend yield is 4. Compass is a global market-leader in the food service industry, providing outsourced catering to other businesses and institutions.

Compass has a resilient business model backed by long-term contracts with high renewal rates. It also doesn't need to hold much capital, and consistently converts profits to free cash flow. Dividends have grown every year since , when Compass separated from Granada Group, and growth over the last five years has averaged more than 10 per cent each year.

Spectris is a Surrey-based global market leader in the precision instruments and controls sector. Sector exposure is broad, with end markets ranging from biotechnology to energy. Spectris benefits from a reputation going back decades, intellectual property, research and development expertise and a strong distribution network.

Relationships with customers become highly embedded and more than 80 per cent of sales come from repeat customers. Spectris operates in rational, niche markets and typically faces three or four competitors that haven't tended to change much over the years.

The business consistently turns profits into cash and its balance sheet is strong. Buckinghamshire-based RWS is a specialist in intellectual property support services, and the global market leader in patent translation. Its team of highly-trained employees translate patents for many blue chip companies. So they return again and again to RWS.

This is an asset-light, highly cash generative business with a very strong balance sheet. The company has grown its dividend every year since its flotation in Unilever's portfolio of brands are used by an estimated 2 billion people around the world daily. One of the classic dividend growth stocks in the UK market with roots going back to the 19th Century. Unilever owns a portfolio of global brands including Dove Soap, Lipton Tea and Magnum ice creams.

This low ticket, repeat-purchase business model has helped drive dividend growth of more than 10 per cent each year per over the past half a century and the company recently increased its dividend by 6 per cent.

Unilever is globally diverse and has the financial strength to continue investing in its brands and distribution network to strengthen its competitive position and help drive long-term growth. The current dividend yield is 3 per cent. This is a high-quality engineering franchise based in Cheltenham with a remarkable year record of dividend growth. Spirax has a dominant global position in the niche market of steam and thermal energy management, providing products that help customers make their industrial processes more efficient and improve product quality.

Customers range from food, drink and pharmaceutical manufacturers to power stations. A large proportion of sales come from spare parts and maintenance, which provides the company with a resilient cash flow stream. Spirax has no debt and has a record of paying special dividends to supplement its ordinary yield when cash builds up on the balance sheet. Lancashire-based Victrex is a global leader in high performance polymers, materials that have several advantages over metal in applications such as planes, cars and medical implants.

Its products help customers save money, reduce production time and improve the performance and efficiency of their products.

Victrex generates strong cash flow and has no debt. It has a clear policy to pay special dividends when cash builds up above a certain level on the balance sheet. The ordinary dividend yield is 3. The views expressed in the contents above are those of our users and do not necessarily reflect the views of MailOnline. By posting your comment you agree to our house rules.

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Companies with high free cash flow coverage of their dividend have a higher current ability to raise the dividend.

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Companies that hold a high level of debt, relative to their potential earnings ability risk having to sacrifice the dividend to meet interest payments. A long-term track record of paying dividends through thick and thin is a good sign. Even the highest quality company is not a good investment at too high a starting valuation.