Why these top FTSE 100 dividends could be slipping

first_imgWhy these top FTSE 100 dividends could be slipping On Tuesday, Severn Trent revealed a new dividend policy, telling us it intends to base it on something called CPIH. On Wednesday, it was the turn of United Utilities (LSE: UU), which said the same thing. They came amid talk of final determinations and the start of a new asset management period (AMP). But what does it all mean?It’s all about negotiations with water regulator Ofwat, and the resulting regular five-year plans. The latest talks started in 2018 when the water firms submitted their plans for the next cycle. After examination, Ofwat issued its final determinations, which it says “set out a five-year price and service package that will enable water companies to deliver more for people today, invest for future generations and at the same time operate more efficiently and reduce bills.“5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…And if you click here we’ll show you something that could be key to unlocking 5G’s full potential…Five yearsEach five-year cycle is known as an AMP. AMP6 is the outgoing period covering 2015-2020, with AMP7 taking over for 2020-2025. The latter commits firms to investing £51bn over the next five years on improving the water business.The process seems to have gone smoothly for United Utilities, which has accepted Ofwat’s final determination for AMP7. United said: “Our plan for AMP7 was fast-tracked through the price review process recognising the high quality and ambition it demonstrated, setting a new standard for the sector.“On one hand, this like good news to me. It means less uncertainty, and another five years of relative clarity over capital expenditure and revenues. And that clarity is what sets aside the utilities sector and leads to robust share prices. Investors, especially the big institutions, really don’t like uncertainty, and they’ll often value dividend reliability over bigger yields.All well and good, but there’s one development here that disturbs me a little, and it’s that new buzzword, CPIH.ChangesPreviously, United Utilities based its dividend rises on Retail Price Index (RPI) inflation. But it now says it “will target growing its dividend per share by CPIH inflation each year from 2019/20 through to 2024/25.” CPIH is defined as the Consumer Prices Index including owner occupiers’ housing costs, but what’s the difference?The firm says: “The change from the current RPI growth to the lower CPIH growth for AMP7 is consistent with the change to CPIH as the basis for indexing allowed revenues.”So future dividend rises are going to be smaller. If the allowed indexing of revenues has been restricted to CPIH inflation, then it seems fair dividends should be similarly indexed. But it does seem to mean lower customer price rises being passed on to shareholders as lower dividend increases.Under pressureHow big is the difference? According to the Office for National Statistics, 12-month RPI inflation for December 2019 stood at 2.2%, but the CPIH inflation figure was lower at 1.4%. United Utilities expects to pay a dividend of 42.6p for the year to March 2020, so how might that progress over the next decade?Lifting it each year by the December RPI inflation figure of 2.2% would grow that 42.6p to 53p per share in 10 years. But at CPIH inflation of 1.4% it would only reach 49p. You need to bear that in mind if you’re investing in water companies. Alan Oscroft | Wednesday, 29th January, 2020 | More on: UU Image source: Getty Images. “This Stock Could Be Like Buying Amazon in 1997” Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we’re offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our ‘no quibbles’ 30-day subscription fee refund guarantee. 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