With the future looking extremely uncertain at the moment, National Grid (LSE: NG) (NYSE: NGG.US) could prove to be a great place to invest. Indeed, during the last three months, shares in the utility company have risen by 7% as investors have sought out its relative safety, consistency and stability. Meanwhile, the FTSE 100 is little more than flat over the same time period.
Looking ahead, here are three reasons why National Grid could continue to outperform the wider index and, more importantly, could boost your total return.
Scottish Referendum
With the Scottish referendum only days away, it’s still too close to call. If Scotland does decide to vote for independence then it could trigger a market correction of sorts, during which time National Grid is likely to fare much better than most of its FTSE 100 peers.
That’s because it is viewed as a strong defensive play and, furthermore, National Grid currently has a low beta of 0.7. This means that shares in the company should (in theory) fall by 0.7% for every 1% fall in the wider market. So, if for example the FTSE 100 falls by 10% following the referendum, National Grid could fall by 7% or less. This could help to keep your portfolio ahead of the wider market.
Income Potential
What makes National Grid a great stock to own during uncertain periods, though, is its high and reliable yield. Shares in the company currently trade on a yield of 4.8% and, best of all, dividends per share are set to rise by at least the rate of inflation over the medium term.
The reliability of National Grid’s dividends means that if there is a fall in the wider market, it provides investors with cash through which to take advantage of keener prices in the index.
Capital Expenditure
While National Grid’s capital expenditure programme is vast, it could be beneficial to investors in the long run. That’s because, while it is hurting the company’s free cash flow in the interim, in the long run it means that National Grid’s regulatory asset base is much higher. In theory, this should equate to a higher share price and so, while unpopular with many investors right now, spending big could mean big profits for shareholders in the long run.
Of course, National Grid isn’t the only company that could be worth adding to your portfolio right now. So, which other shares should you buy, and why?
