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United Utilities rises again

Defensive stocks,out of the news for some time,are back again.

With the stock market suffering its first wobble since October,United Utilities,Severn Trent , AstraZeneca and GlaxoSmithKline have been making appearances regularly.

The pricing review made by the industry regulator Ofwat facilitated to the struggle faced by the utilities industry.Last year,there was a 20 percent fall in United Utilities and a 9.3 percent fall in Servern Trent.And so,for the next few years,it gave reasons to the money that customers were charged by the water companies and it was definitely harsher than was anticipated.

The utility stocks are like a hedge to inflation as their charges are related to retail prices. Investors may find this appealing

The recent trading update given by the United Utilities group was welcomed by the investors. The company provided confirmation that with its confident outlook of the future, the pricing regulations placed by the industry regulator Ofwat will be accepted with no questions posed.

The trading period between 01 April 2010 to 31 March 2015 is covered by these terms.

The group is successfully implementing an efficiency programme currently and so the management believes that the pricing requirements can be met.The required infrastructure which the regulator needs over the time spancan be facilitated too.This comes around to 3.6 billion pounds to be invested for over a period of five years, a rise of 400 million pounds in real terms during the period from 2005 to 2010.

There is utmost confidence among the management with regard to the firm's capital structure and its current capability to aid itself financially. A dividend rebasing of 12.5 pc cut to the diveidend payment is effectively involved,to be obtained in 2010/2011

United Utiliies surprised the financial market by stating that smaller divident cuts were required to handle the  effects of pricing restrictions placed by Ofwat.The rights issues needs no attention in this matter.

Bobby Chada of Morgan Stanley is of the perception that dividends of  United Utilities that were rebased  will hold them good for the following five years of time.

When placed against a scenario  of a challenging economy,the defensive nature put forth by the group proves to be effective.

Costs have reduced considerably because of the efficiency programme initiated by the company.

The company can be placed in stronger financial holds with a rebased dividend.The aim is to keep targeting a growth rate of RPI and 2pc per year through to the year  2015.,for a dividend per share

The debts incurred by the group has been considerably reduced.

The businesses which are non regulated are sold,if the management foresees that no value to be got in future

The huge liquidity integrated into the global financial economy needs to be retrieved at some point of time.But  with the decline,investors had a real feeling of how it may be and also brought to the limelight the complications involved in investing in stocks that are rather cheap financially.Such predicaments help to highlight the lure of defensives