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  Tom - the pension trustees have a duty to their members to get a return while the utility companies need to attract investment as well. Such 'boring' equities need to attract that investment by offering dividends as they are not regarded as a 'growth stock'. This is also all the more important for them because they are restricted in the amount they are allowed to 'gear' in other words borrow by OFWAT, their regulator. The regulator does this to reduce the risk to water customers. Dividends are therefore the main weapon they have to raise the capital they need to develop the infrastructure.
  
  They are however trying to find other ways to bridge the 'capital gap'. I discussed this very thing a few weeks ago in the City with a top institutional bond manager. He told me that one utility company has tried to get around this by setting up a holding company to issue bonds direct to the general public. It looks as if it is actually the regulated utility raising the money, but it isn't. The people who buy those bonds consequently are taking on greater default risk than they perhaps realise and yet these bonds are paying a lower yield than the bonds issued by the regulated utility available to the institutions offering less risk. A lesson there I think for anyone thinking of buying direct into bonds.

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