If today’s turbulent stock market is making you feel seasick, firstly, I don’t blame you, and secondly, don’t despair — there are some safe harbours out there.
Tesco is down a shocking 24% over the last turbulent month. BP and WM Morrison are both down 12% over the same period. Aviva and Barclays are down 10%, while BHP Billiton and Vodafone are down 8%.
Yet these troubles have mostly washed over the UK’s largest utility, National Grid (LSE: NG) (NYSE: NGG.US), which has stood firm as hurricanes rattles the stock markets. Over the last month, it is down just 2%.
National Treasure
Utility stocks are supposed to stand firm, but they don’t always manage it. British Gas owner Centrica has fallen 10% over the past month, and 20% in the last year.
National Grid’s performance isn’t a flash in the pan. Its share price has grown 68% in the past five years. Over the same period, the FTSE 100 is up just 19%.
For a so-called defensive utility, that is dramatic outperformance.
Better still, the eight-year agreement it struck with regulators last year has given it a strong and stable platform for the future.
And unlike Centrica, National Grid should also escape the political dogfight over energy prices that is likely to intensify into the run-up to the general election in May, especially if we get a cold winter and utility bills go through the roof.
Big In The US
National Grid’s management has been confident of delivering good organic growth and healthy returns, and has been routinely hitting its target. It has given investors exactly what they want from this kind of stock: solid operational and financial performance.Â
And it has further growth potential too, with management targeting an improved return from its US operations.
There are risks, of course. In recent years, hurricanes Irene and Sandy both left it footing expensive bills for damage in the US. Happily, recent storms have been less costly.
Income Dream
In some respects, I wish National Grid had fallen in price. I like buying solid companies that have been caught by a wider market sell-off.
As it is, you have to pay a slightly higher price for National Grid’s solidity. Its P/E valuation of 13.1 times earnings is just above the FTSE 100 average of around 12.7 times.
But its 4.8% yield is comfortably above the index average of 3.6%. Plus there is scope for the yield to grow, given a progressive management attitude to the dividend.Â
With the average savings account returning just 0.67%, National Grid could be the first port of call for cautious savers seeking a safe and rewarding home for their money.