Water company Severn Trent has announced plans to increase its dividend for the next year, as it continues to trade in line with targets.

The firm confirmed that its financial performance up to January 23 "remains on track", and it is set to meet its guidance for the full financial year.

Consequently, the company anticipates distributing a dividend of 126.02p to shareholders for the 2025/26 financial year. This represents an inflation-based rise from the 121.71p dividend previously declared for the current financial year.

The proposed increase comes amid intense scrutiny over sector payouts, particularly given rising customer bills and concerns about leaks. Last month, regulator Ofwat imposed an £18.2m fine on Thames Water for unjustified dividends totalling £158.3m.

Severn Trent stated that it proposed the increased dividend after considering the final determination disclosed by the regulator last month. In this final determination, Ofwat permitted Severn Trent to raise customer bills by an average of 47% over the next five years.

The company explained that this bill increase will support its goals to halve spills by 2030, reduce pollution by 30%, and further decrease leakage by 16%.

On Friday, Severn Trent also announced that it anticipates a £100m benefit from outcome delivery incentives (ODIs) for 2024. This regulatory framework rewards companies that meet performance targets and provides compensation to customers when these targets are not met.