National Grid (LSE: NG) is considered by many investors to be a prime ‘safety stock’ and a cornerstone holding for a portfolio. Rightly so, in my view.
Having a near-monopoly of ownership and actual monopoly as operator of Britain’s principal gas and electricity arteries, the FTSE 100 blue chip holds a unique position of national dominance. Needless to say, it’s a highly regulated business, but essentially, if it invests appropriately and operates reliably and efficiently, shareholders should receive a fair and relatively consistent return on their investment.
Attractive opportunity
Even after a period of weak share-price performance, National Grid’s 10-year annualised total return of 5.71% is a little ahead of the Footsie’s 5.57%. Furthermore, the current depressed price (870p) to me represents a great opportunity to buy a slice of the business.
The company is expected to deliver earnings per share (EPS) of 58.9p this year, giving a price-to-earnings (P/E) ratio of 14.8. You have to go back around five years to find it on such an attractive earnings rating and the same can be said of a 5.2% dividend yield on an expected payout of 45.5p.
Diversification
Operating in the northeast US as well as Britain, National Grid offers a degree of diversification in that it isn’t exposed to a single regulatory regime. However, I imagine few investors are aware that there’s another London-listed company, offering diversification into a third geography and regulatory regime.
The company in question is long established, having been founded in 1924, and joined the stock market in 1964. It operates in a mature western market, where the risks of political upheaval, seizure of assets and so on are minimal, and it’s a well-managed business. It released its latest set of annual results today.
Hidden gem
Jersey Electricity (LSE: JEL) is the sole supplier of electricity in Jersey, in the Channel Islands, and also has some small income streams from non-energy businesses. Its shares are 62% owned by The States of Jersey (the government of the British Crown dependency) with the remainder in the hands of institutions and private individuals.
The company today reported a pre-tax profit of £13.5m on revenue of £102.3m for its financial year ended 30 September. EPS came in at 34.6p, which was 3.9% up on last year, and the board lifted the dividend by 5.3% to 13.8p. The shares are unmoved at 452.5p, giving a P/E of 13.1 and a dividend yield of 3%.
Jersey Electricity’s 10-year annualised total return is running at 9.39% (ahead of National Grid’s 5.71%) and I believe the Channel Islands business is well positioned to continue delivering very satisfactory returns for its shareholders.
This well-managed business has a robust balance sheet and with it also having an attractive P/E and well-covered dividend, I personally rate the stock as a ‘buy’ in its own right and commend it as worthy of investigation for investors in ‘safety stocks’ looking to diversify exposure across different regulatory regimes.
