Here’s why I’d rather invest in the National Grid share price than bothersome buy-to-let

National Grid plc (LON: NG) could offer stronger returns than a buy-to-let.

| 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.

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.

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.

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.

Peter Stephens owns shares of NATIONAL GRID PLC ORD 12 204/473P. 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

Young black man looking at phone while on the London Overground
Value Shares

After a 16% drop, FTSE 100 stock JD Sports Fashion looks like a steal to me

This FTSE 100 stock has tanked since mid-September. Edward Sheldon believes that there's value on offer after the share price…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Is now the time to buy BP shares? Here’s what the charts say

The best time to buy shares in a company is when they’re trading at a discount. But the future is…

Read more »

Investing Articles

Here’s how I’d use £50K to aim for a million when the stock market crashes

Seeing a stock market crash as a buying opportunity could prove lucrative for a well-prepared, long-term investor. Christopher Ruane explains…

Read more »

Stack of one pound coins falling over
Investing Articles

It’s up 27% with a P/E of 9! I’m considering the potential of this blossoming penny stock

Despite several years of losses, this UK penny stock has an impressive valuation. I’m looking to see if it could…

Read more »

US Stock

The Nvidia share price falls! Here’s what I think happens next for the S&P 500

Jon Smith reviews the overnight results from Nvidia and explains why this could stall the S&P 500 performance through to…

Read more »

Investing Articles

Down 15% today, is this FTSE 100 share too cheap for me to miss?

JD Sports' share price has tanked after the FTSE 100 share released another profit warning. Is this the opportunity I've…

Read more »

Investing Articles

Up 8% today, is this FTSE 100 growth stock a slam-dunk buy for me?

Halma's share price is soaring thanks to another headline-grabbing trading update. Is the FTSE 100 stock now too good for…

Read more »

Investing Articles

With a P/E ratio of just 10.5 is now a brilliant time to buy a cut-price FTSE 250 tracker?

Harvey Jones says a recent dip in the FTSE 250 leaves the index trading at bargain levels. One stock in…

Read more »