As the FTSE 100 hits its lowest level in a year, many investors have been longing for safe harbours such as the major utility stocks.
But exactly how safe are Centrica (LSE: CNA), National Grid (LSE: NG) and United Utilities (LSE: UU)?
United Stands
At time of writing, the FTSE 100 is down 7.3% since peaking at 6672 on Monday 8 December. Over the same timescale, Centrica is down 7.4%, and National Grid is down 6.8%. Only United Utilities kept its head above water, falling just 2%.
Investing in Centrica and National Grid is like pulling into a friendly berth, only to find it swarming with pirates.
So what went wrong?
Band Of Sold
It’s a long time since Centrica could be called safe. Ever since Labour leader Ed Miliband threatened to freeze energy prices, shares in the British Gas and Scottish Gas owner have been under siege. It is down 20% in the last year, against a 4.6% drop in the FTSE 100.
Centrica’s current yield of 6.46% is certainly electric, but largely down to that share price shocker. It won’t be safe before the May election, and with a hung Parliament likely, probably not afterwards.
National Setback
I’m more surprised by National Grid’s recent setback. I have admired the stock for some time, and a 16% rise in first-half profits on the back of new Ofgem incentives only fired my enthusiasm.
As a distributor rather than a supplier, National Grid is often thought to be immune to energy shocks, but the latest is clearly a shock too far.
Despite recent slippage, it is up 12% this year, and 22% over two years. Current turmoil looks like a potential buying opportunity, knocking the stock valuation to around 12 times earnings, and lifting its yield to 4.85%.
National Grid isn’t completely safe, but its future still looks secure.
Water Wings
United Utilities has been acting more like a shoot-the-lights out growth stock likely, rising 35% in the past year. This water utility has also escaped the energy shock unscathed.
Revenues and profits have risen steadily lately, and management is positive about hitting its dividend and regulatory targets.
As a heavily regulated business, much depends on ongoing talks with Ofwat over its five-year business plan, to be included in the next couple of months.
That adds a layer of uncertainty, but management seems confident. The 3.96% yield is relatively solid, given recent share price growth.
As investors have discovered lately, gas and electricity are no longer safe havens. National Grid still looks safer than Centrica to me. But water looks like the safest industry of all right now.