Today I’ll be revealing two low-risk defensive stocks from the FTSE 100 with inflation-proof dividends to give your portfolio the stability it needs in times of uncertainty.
Which way will the wind blow?
Gas and electricity supplier SSE (LSE: SSE) announced last week that plans to build a £2.6bn offshore windfarm in Scotland have been given the green light. The Beatrice Offshore Windfarm Ltd or BOWL project will be one of the largest private investments ever made in Scottish infrastructure and should provide around 890 jobs during the construction phase. The project is 40% owned by SSE, along with Copenhagen Infrastructure Partners (35%) and SDIC Power (25%) and is situated in the Outer Moray Firth, off the east coast of Scotland.
Once operational, in 2019, the 84-turbine project should provide 588MW of power to roughly 450,000 homes. The Perth-based utilities business recently reported a fall in both revenues and profits as lower wholesale gas prices continue to affect the sector. Full-year results for the year to March showed a drop in pre-tax profits to £593m, down from £735m for FY2015, with revenues falling to £28.8bn compared to £31.7bn a year earlier.
The lower numbers did however manage to beat market expectations, and the company targets a return to growth in the current financial year, while pledging to deliver a dividend that at least keeps pace with RPI inflation over the long-term. At current levels the shares support chunky dividend payouts with prospective yields of 5.9% and 6% forecast until 2019. In my view, SSE provides income investors with strong inflation-proof dividends coupled with a degree of stability in a well-balanced portfolio.
National Grid powers ahead
Utilities giant National Grid (LSE: NG) reported a strong set of figures recently when it announced its full-year results for the 12 months to the end of March. The company beat market expectations with a 15% rise in pre-tax profits to £3.03bn, compared to £2.63bn a year earlier, with revenues coming in slightly lower at £15.12bn.
The Warwick-based business is by far the largest utility company listed in the UK, valued at around £37.7bn, making it twice the size of gas and electricity supplier SSE. But the shares are changing hands at near all-time highs, having breached the £10 barrier for the first time in April. So is it time for a market correction, or will National Grid continue its relentless charge upwards?
In my opinion the company’s dividend policy should continue to support the share price, at least over the medium term, with analysts forecasting dividend payouts of 44.52p and 45.65p per share for FY2017 and FY2018, meaning healthy yields of 4.4% and 4.5% for the next couple of years. National Grid is an ultra-defensive stock with inflation-busting dividend payouts, making it an ideal long-term income play for nervous investors.