Stock of the week: National Grid
Ian Forrest, investment research analyst at The Share Centre, picks power and gas distribution company National Grid as stock of the week.
In times of volatile markets and uncertain economic prospects, investors are looking for companies that can generate income on a constant basis.
We have long been fans of National Grid for income seekers and the guarantee of dividends rising at least in line with RPI continues to be very appealing to investors. A very nice 5.8% yield at present makes it a good candidate for this week’s stock tip.
Investors interested in the sector will be aware it has been under pressure from politicians and regulators, which has led to an increase in share price volatility over the past two years.
Indeed, earlier this year there was expected news from Ofgem of a tougher regulatory framework that will lower profits from 2021 as a result of what it called “excessive profits” across the sector. These proposals were confirmed in July, impacting the share price.
Nevertheless, prospects for the company’s operations in the US are good and the UK operations remain on track to outperform this year. The group is benefiting from low interest rates on its cost of borrowings, and investors should appreciate that it expects earnings growth at the top end of its 5 – 7% range in the medium-term.
We recommend National Grid as a ‘buy’ for low to medium risk investors geared to an income portfolio.