Highlights

• Pennon Group cut its total Dividend to 29.29p per share for the year to March 2026 from 31.57p.

• The final dividend rose to 20.03p, while the Interim Dividend fell to 9.26p from 12.14p.

• Pretax profit reached £114.4m, a swing from a £72.7m loss, with underlying EBITDA up to £519.2m.

• South West Water was fined £1.8m over a drinking water offence linked to a 2024 outbreak near Brixham.

Water utilities are supposed to be the quiet corner of the market, yet Pennon Group (LSE:PNN) has had anything but a quiet year. The Exeter-based company flipped to a profit, replaced its chief executive and reshaped its payout, all while its regulated Business began a demanding new Investment period.

How the dividend changed

Two payments fell inside the trailing window: the 9.26p interim (ex-dividend 29 January 2026, paid 2 April 2026) and the 20.03p final (ex-dividend 23 July 2026, paid 4 September 2026). Together they make 29.29p, which is 7.2% below the 31.57p of the previous year. The interim fell 24% from 12.14p, while the final rose 3.1% from 19.43p. Using a delayed share price of 363p recorded on 8 October 2026, the trailing Yield is about 8.1%, though a price of 491.20p reported in June would give a lower figure, so the price is the soft spot in the calculation.

Return to profit

For the year ended 31 March 2026 pretax profit was £114.4m against a £72.7m loss a year earlier. Basic Earnings Per Share were 19.4p, and adjusted basic earnings per share were 28.3p. Revenue grew 23% to £1.29bn and underlying EBITDA rose 55% to £519.2m. For the coming year, the company expects underlying EBITDA to grow between 5% and 10%.

Cover and sustainability

Basic earnings of 19.4p per share do not cover a 29.29p dividend, though adjusted earnings of 28.3p come close to doing so. The distinction matters: the dividend is being supported by adjusted figures and by the company's own judgement on what is sustainable through the investment programme. The shape of the cut, with a smaller interim and a larger final, shows the board Rebalancing the payout rather than abandoning it.

Leadership and regulatory risk

Keith Haslett became chief executive on 1 April 2026 and has spoken of the need to rebuild trust with customers and communities. South West Water was fined £1.8m for a drinking water offence linked to a 2024 cryptosporidium outbreak around Brixham, Devon. The company is mobilising its AMP8 investment plan, the current regulatory period, and Haslett said improving operational discipline and Capital delivery will be important to meeting those commitments. A strategic update was planned before the end of September. Regulatory outcomes, fines and delivery on capital plans are the main variables for the dividend.

The investment backdrop

Pennon is mobilising its AMP8 investment plan for the current regulatory period. Underlying EBITDA of £519.2m, up 55%, gives scale, and the company expects growth of 5% to 10% in the coming year. Yet the dividend path now depends on how well capital is delivered and how the regulator and customers respond. The reshaped payout, with the final dividend rising even as the interim was cut, indicates how the board is balancing the needs of the investment programme against Shareholder income.

How water Utility dividends work

A regulated water company earns a return on the Assets it invests in, and the regulator sets allowed returns and customer bills for each period. Pennon Group (LSE:PNN) therefore has relatively predictable revenue, but it must also fund large investment programmes. Dividends are set after considering profit, Debt and the needs of the investment plan. When investment rises, the board may reduce the dividend to protect the balance sheet, as it did with the interim.

Interim and final reshaped

The interim fell by 24% to 9.26p, while the final rose 3.1% to 20.03p. This rebalancing means that more of the annual payment now arrives after the full-year results. Investors who focus on the trailing yield should remember that the total for the window of 29.29p is the sum of both payments, and that the next interim will show whether the lower level is the new pattern for LSE:PNN.

Customers, regulators and trust

The fine of £1.8 million linked to a drinking water offence and the stated need to rebuild trust show that a water company's licence to operate depends on service and public confidence. The regulator can impose penalties, and customer expectations affect the allowed returns and the reputation of the business. Delivery of the investment plan on time and on budget is therefore a central part of the investment case.

Looking beyond a single payment

One dividend does not show a trend. Looking at several years of payments, the split between interim and final amounts, and any special payments gives a clearer picture of how reliable the income is. It is also worth checking whether the dividend has been funded from profit, from reserves or from borrowing, because only the first can be repeated indefinitely.

What to watch next

The strategic update, the half-year results and the regulator's view of performance are the next markers. Investors should follow underlying EBITDA against the expected growth of 5% to 10%, the level of debt and any change in dividend policy. A stable or rising payout supported by adjusted earnings would help to rebuild confidence in the income.