Do Crashing Oil & Gas Prices Mean Trouble For SSE plc And National Grid plc?

Will the share prices of SSE plc (LON:SSE) and National Grid (LON: NG) follow the oil majors lower?

| 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

My daily commute to work means that I need to drive many miles. So, personally, I am delighted that oil prices have been falling. However, for oil companies like BP and Shell, this is less good news.

We have a global glut of oil

The world is drowning in oil. So much so that Goldman Sachs have predicted an eventual oil price of $20 a barrel. We have a global glut of 3 billion barrels of oil.

Why? Because the high oil prices of the past decade have encouraged a boom in oil exploration and development. This means that OPEC producers such as Saudi Arabia and Iraq are pumping as much as they have ever done, the oil majors are extracting oil from Alaska, the Artic and the Gulf of Mexico, and then there is fracking and oil sands.

Should you invest £1,000 in Petropavlovsk Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Petropavlovsk Plc made the list?

See the 6 stocks

Moreover, the likelihood is that there will be no rebound in commodities; energy prices are likely to remain low for the next 10-15 years.

It doesn’t take a genius to work out what effect this has on the share prices of oil producers, but what about energy utilities such as SSE (LSE: SSE) and National Grid (LSE: NG.)? How will they be affected?

Well, over the course of the past 15 years, in the midst of a general equities bear market, the share prices of the utilities have been steadily rising, alongside majors such as BP and Royal Dutch Shell.

Yet the utilities remain hugely profitable

But the interesting thing is, when the oil price turned down in the summer of 2014, the share price of the oil companies fell as well. Yet the utilities were not affected. Does this mean we should keep faith with these firms? How can we explain this divergence?

Well, let’s look at the fundamentals. Take SSE first. This has a forecast 2016 P/E ratio of 13.10 and a dividend yield of 6.12%. Thus the company looks good value, and what is particularly impressive is that stonking dividend yield. What’s more, this is a income which has been consistently high, and indeed increasing, for the past 5 years, and is well covered by profits.

How about National Grid? Well it has a predicted 2016 P/E ratio of 15.90, and a dividend yield of 4.61%. Again, this a firm which has been churning out profits and dividends year in and year out.

I see no sign of either business being over-priced. These are steady, stable companies with predictable profits and dividends. Having said that, I wouldn’t be surprised if, over the long term, share price increases level off and eventually fall, with margins under pressure from falling energy prices and increasing competition.

However, both SSE and National Grid still look good dividend investments. You may be rather late to the party, but both are still worth buying into.

Investing in AI: 3 Stocks with Huge Potential!

🤖 Are you fascinated by the potential of AI? 🤖

Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.

If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…

Then you won't want to miss this special report inside Motley Fool Share Advisor – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And today, we're giving you exclusive access to ONE of these top AI stock picks, absolutely free!

Get your free AI stock pick

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.

Prabhat Sakya has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Prediction: 12 months from now, £5,000 invested in Tesla stock could be worth…

Tesla stock has endured a miserable year so far, falling by 29%. Muhammad Cheema takes a look at how it…

Read more »

Investing Articles

See what £10,000 invested in Tesla shares at their mid-December peak is worth today 

As the world absorbs the full scale of Donald Trump's tariffs, Tesla shares are reeling. Investors who bought the stock…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Dividend Shares

2 ‘safe’ LSE dividend stocks to consider as global markets sell off

As global markets experience high levels of volatility due to economic uncertainty, investors are piling into these ‘safe-haven’ dividend stocks.

Read more »

Investing Articles

US stock market rout: an unmissable opportunity for investors?

His tech-heavy portfolio has been smashed by Trump’s tariffs. However, Dr James Fox believes there could be some opportunities in…

Read more »

Investing Articles

After a 13% ‘Trump tariff’ fall, is the Barclays share price too cheap to miss?

Does the Barclays share price fall mean we should all panic and run screaming from the stock market? Nah, of…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

2 investment trusts to consider for a Stocks and Shares ISA

These two investment trusts have a different focus -- but our writer sees both as worth considering, one more for…

Read more »

Investing Articles

Deutsche Bank reiterates Buy rating on 9.6% yielding FTSE 250 stock that was “most shorted in UK”

Our writer investigates why a major broker remains optimistic about a FTSE 250 stock that was once the most shorted…

Read more »

Investing Articles

2 things to remember when stock markets are turbulent

US trade policy has rattled the stock markets in New York, London and elsewhere. Our writer outlines a couple of…

Read more »