While the FTSE 100 has fallen by 7.5% in the last month, National Grid (LSE: NG) has seen its share price decline by less than half that, with the utility company recording a drop of 3.5%. Certainly, this indicates that it is a strong defensive play which is likely to hold its value much better than most stocks during a market downturn. However, there is much more appeal to National Grid than merely a stock which offers a relatively safe investment opportunity.
That’s at least partly because the company remains one of the best income stocks in the FTSE 100. It yields 5.2% (which is among the highest yields available in the index) and, perhaps more importantly, is very likely to make its dividend payments in future. This could prove to be key for income-seeking investors, since there are currently a number of resources stocks, for example, which have high yields but also have relatively low dividend coverage ratios and so seem likely to reduce shareholder payouts over the medium term. National Grid, though, has a dividend coverage ratio of 1.3, which has been fairly constant in recent years.
Additionally, National Grid has an excellent track record of increasing dividends. For example, in the last five years it has recorded an annualised rise in shareholder payouts of 3.8%, which is considerably higher than inflation during the period. And, with the company’s earnings forecast to rise by 3% next year, more dividend growth is on the horizon. With interest rates unlikely to rise at a fast pace, high, growing and stable dividend stocks such as National Grid could easily beat the index over the medium to long term.
Of course, buying stocks with great income prospects, such as National Grid, is a sound move. But, companies which offer excellent capital gain potential also hold huge appeal at the present time.
One prime example is engineering consultancy business IQE (LSE: IQE). It released an upbeat set of half year results today, with the company moving into profitability and being on-track to meet full-year expectations. Furthermore, IQE announced the signing of an exclusive licence and option agreement for the Rare Earth Oxide semiconductor technology, which gives IQE a 30 month licence to commercialise the technology and an option to subsequently acquire it.
Looking ahead, IQE is forecast to post earnings growth of 12% next year. This, when combined with a price to earnings (P/E) ratio of just 10, indicates that the company offers growth at a very reasonable price. As such, and with investor sentiment improving in the last three months, as evidenced by a share price rise of 13%, now seems to be a good time to buy a slice of the business.
Similarly, Accesso Technology (LSE: ACSO) also appears to be worth buying right now. The travel and leisure technology company reported a rise in adjusted operating profit of 22% in today’s release of its half-year results, while 60 contract wins in the period meant that revenue increased by around 24% versus the same period of last year. And, with the company’s second half tending to be much stronger than its first, Accesso Technology looks set to perform well in the full-year.
In fact, with the company forecast to post a 19% rise in earnings per share this year, followed by further growth of 28% next year, its P/E ratio of 34.8 indicates that there could be capital gains on the cards. As such, the 11% rise in its share price in the last month could continue over the medium to long term.
