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

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

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

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »