With tax changes and uncertainty about property prices being present, the future for buy-to-let appears to be relatively challenging. Certainly, high demand and limited supply could cause house prices to rise in the long run. But being a landlord may become increasingly difficult as the government seeks to crack down on second home ownership.
As such, shares like National Grid (LSE: NG) could offer stronger prospects from an investment perspective. The company appears to have a sound business model, as well as income potential. Alongside a growth stock that released a promising update on Tuesday, it could be worth a closer look in my opinion.
Improving prospects
The company in question is media distribution company Entertainment One (LSE: ETO). It released results for the six months to 30 September, with underlying EBITDA (earnings before interest, tax, depreciation and amortisation) increasing by 10% to £60m. This was driven by revenue growth in Family & Brands, although the Film & Television segment’s slow growth offset this to some extent.
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The company believes that it has a strong content development pipeline, with a number of new releases ahead. It appears to be well-placed to capitalise on changing trends in the wider industry, with its potential for growth in China and other parts of the world being relatively impressive.
Entertainment One is expected to report a rise in earnings of 16% in the next financial year. This puts it on a price-to-earnings growth (PEG) ratio of 1, which suggests that it could offer a margin of safety at the present time. As such, it could deliver improving share price performance, with it seeming to offer growth at a reasonable price.
Income prospects
As mentioned, National Grid’s income potential continues to be relatively appealing. Although there are shares in the FTSE 100 which have a higher yield than the company’s current income return of 5.7%, its dividend reliability could make it relatively attractive at a time when the prospects for the UK and world economies remain uncertain. Investors may become more concerned about the return of capital, as opposed to the return on capital, and this could make defensive shares more appealing.
Alongside this, National Grid’s dividend is expected to grow at a pace which at least matches inflation over the medium term. This could help to maintain its status as one of the higher-yielding shares in the FTSE 100, while also protecting against what may prove to be a higher rate of price growth following Brexit.
Therefore, while buy-to-lets could hold some appeal in terms of their capital growth potential, in the long run, shares such as National Grid may offer higher yields, a favourable tax situation and defensive potential should the UK economy experience further challenges. As such, the stock seems to be a sound buy for the long term at a time when sentiment across the UK remains at a low ebb.
