Water giant Severn Trent has said it plans to hand shareholders a higher dividend for the next year as trading remains in line with targets.

It said its financial performance up to January 23 “remains on track”, with it set to meet its guidance for the full financial year.

As a result, the company said it expects to hand out a dividend of 126.02p to shareholders for the 2025/26 financial year.

The company said this is an inflation-based increase from the 121.71p dividend it already announced for the current financial year.

The increase comes amid significant scrutiny over the level of payouts in the sector, against a backdrop of rising customer bills and concerns over leaks.

Last month, regulator Ofwat fined troubled Thames Water £18.2 million for paying £158.3 million in dividends to shareholders which it said were not justified.

Severn Trent said it has proposed the increased dividend after considering the final determination which was revealed by the regulator last month.

In the final determination, Ofwat said that Severn Trent will be able to increase customer bills by an average of 47% over the next five years.

The company said the bill rise will help its efforts to halve spills by 2030, reduce pollution by 30% and reduce leakage by a further 16%.

On Friday, Severn Trent also reported that it expects a £100 million benefit from outcome delivery incentives (ODIs) for 2024, a regulatory framework which rewards firms which meet performance targets but compensates customers for firms who miss these targets.

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