One FTSE 100 company that I would add to my retirement portfolio and one I would stay away from

Shares of Vodafone Group plc (LON: VOD) look attractive right now while those of National Grid plc (LON: NG) look risky to me.

| 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.

Large, cash-generating companies are exactly what income investors look for — they can deliver stable cash flows to fund dividend payouts, and generally don’t vary too much in terms of their overall value. Today I want to look at two FTSE 100 companies that fit the bill — one of which I like quite a lot, and one of which I have concerns about.

Vodafone

Investors in Vodafone Group (LSE: VOD) were handed a very pleasant surprise earlier this summer when the shares jumped 10% in one day on the news that CEO Nick Read wants to spin off the company’s European tower network into a separate business called TowerCo, which may be floated on the stock exchange. 

The proposed deal would generate around €20bn (£18bn) and create a company with more than 60,000 towers across mainland Europe. The deal is exciting to investors primarily for its potential to pay down some of Vodafone’s debt mountain, which stood at around €48bn (£43.5bn), as reported by my colleague Harvey Jones. Shares of Vodafone currently yield a nice 5.2%, just above the FTSE 100 average of 4.7%. Its dividend was cut back in May (another debt-reducing measure), ending a 20-year streak of increases, and management now claims that it now has ample room to manoeuvre. 

In its most recent trading update for the quarter that ended on June 30, the company reported slightly falling revenues, which the bosses chalked up to exchange rate effects. Stagnant growth is never a great sign, but I think it is less of a concern for a company with a market capitalisation of £41bn. Overall, I think that Vodafone is a good addition to an income portfolio, with the TowerCo deal being a nice cherry on top for the future. 

National Grid

When it comes to defensive income stocks, utilities are generally near the top of the list. After all, people need electricity and gas, even during tough times. Of course, I wouldn’t expect to see this stock making any significant gains — after all, its operates in a pretty saturated market. But if we’re talking about reliable stocks for a retirement portfolio, it certainly fits the bill. This is why National Grid (LSE: NG) looks attractive on paper — a solid 5.6% dividend yield and a healthy balance sheet.

However, I believe that the current political environment throws up a number of risks for shareholders of this utility company. For one thing, regulatory body Ofgem has recently voiced its concerns about energy prices, and could introduce caps that would hit National Grid’s bottom line, thus putting its dividend at risk. 

Moreover, a Jeremy Corbyn-led Labour victory at the next general election is a real possibility, which means wide-ranging nationalisation of public utilities is also very much on the table. Given that this would be the most left-wing government that the UK has had in decades, I would advise National Grid shareholders to brace themselves. For these reasons I am choosing to stay away from this stock.

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.

Stepan Lavrouk has no position in any of the shares mentioned. 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

Here’s how a Stocks and Shares ISA and Lifetime ISA could supercharge my wealth!

Individual Savings Accounts (ISAs) can help UK share investors take their earnings to the next level. And their importance is…

Read more »

A person holding onto a fan of twenty pound notes
Investing Articles

A high-yield dividend ETF and an investment trust to consider this November!

Investors wanting to boost their passive income could benefit from investigating these high-yield funds and trusts, says Royston Wild.

Read more »

Investing Articles

2 of my favourite, cheap FTSE 100 growth shares this November!

These FTSE 100 growth shares could be great long-term picks to consider, reckons Royston Wild. At current prices he thinks…

Read more »

Investing Articles

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »

Dividend Shares

A closer look at the 11% dividend yield forecast for Phoenix Group shares

Phoenix Group shares have one of the highest dividend yields in the FTSE 100 index today. Could this be a…

Read more »