National Grid is a FTSE 100 dividend stock I’d buy with £1,000 today

National Grid plc (LON: NG) could deliver higher returns than the FTSE 100.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

RISK WARNING: should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice. The Motley Fool believes in building wealth through long-term investing and so we do not promote or encourage high-risk activities including day trading, CFDs, spread betting, cryptocurrencies, and forex. Where we promote an affiliate partner’s brokerage products, these are focused on the trading of readily releasable securities.

The performance of National Grid (LSE: NG) in recent months has been somewhat surprising. It has declined by around 12% since May, while the FTSE 100 has fallen by around 14% over the same time period. While it has outperformed the index, its defensive credentials would normally be expected to appeal to investors during a challenging period for the index.

Yet investors appear to be uncertain about the company’s prospects. As such, it may now offer a margin of safety versus a number of its index peers. This could make it worth a closer look alongside another company that released an update on Friday and which has experienced a declining share price in recent months.

Improving outlook

The company in question is speciality pharmaceuticals business Circassia (LSE: CIR). It released a trading update for the 2018 financial year which showed that it has enjoyed success in implementing its cost containment strategy.

Net cash outflow for the year is expected to be less than £20m, with sales due to be between £48m and £52m. This follows higher Tudorza rebates in federal channels in the second half of 2018, as well as a delay in revenue recognition in China as a result of the establishment of a local subsidiary.

Circassia expects to report significant sales growth in 2019. The establishment of a direct sales operation in China could catalyse its financial performance, while it aims to launch COPD (chronic obstructive pulmonary disorder) treatment Duaklir should approval be granted in the US. While the company is expected to remain loss-making in 2019, improving financial performance could help it to reverse a share price decline of 47% in the last year.

Defensive appeal

While National Grid has thus far not proven popular at a time when the FTSE 100 has experienced a period of decline, the stock could become increasingly appealing to a range of investors. The general trend among investors in recent months has been towards increased risk aversion, and this could continue in the coming months. The prospect of a global trade war, Brexit, slowing growth in China and rising US interest rates may contribute to a desire among investors for less risky assets.

With National Grid having a business model that is less closely correlated to the wider economy than the vast majority of its FTSE 100 peers, it may be able to deliver reliable dividend growth over the medium term. It already has a dividend yield of 6%, which is historically high for the stock. And with its earnings forecasts being relatively robust and dividend growth expected to match inflation over the next few years, its income appeal appears to be high.

Certainly, the wider utility sector faces a period of regulatory change which could impact negatively upon dividend growth in the long run. But with risks facing the world economy being high today, National Grid could become an increasingly popular share during the course of 2019 in my opinion.

RISK WARNING: should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice. The Motley Fool believes in building wealth through long-term investing and so we do not promote or encourage high-risk activities including day trading, CFDs, spread betting, cryptocurrencies, and forex. Where we promote an affiliate partner’s brokerage products, these are focused on the trading of readily releasable securities.

Peter Stephens owns shares of NATIONAL GRID PLC ORD 12 204/473P. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Publish Test

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut…

Read more »

Investing Articles

JP P-Press Update Test

Read more »

Investing Articles

JP Test as Author

Test content.

Read more »

Investing Articles

KM Test Post 2

Read more »

Investing Articles

JP Test PP Status

Test content. Test headline

Read more »

Investing Articles

KM Test Post

This is my content.

Read more »

Investing Articles

JP Tag Test

Read more »

Investing Articles

Testing testing one two three

Sample paragraph here, testing, test duplicate

Read more »