National Grid (LSE: NG) is probably one of the most widely held income stocks in the FTSE 100 and, with it yielding more than 5.2%, it is clear to see why. However, where National Grid has a major edge over most of its index rivals is in terms of its risk profile.
Take, for example, other utilities such as domestic energy suppliers. They may offer slightly higher yields than National Grid but, as the last couple of years have shown, can easily become political ‘hot potatoes’, with the so-called ‘cost of living crisis’ being laid at their door and policies such as a freeze on domestic energy prices and a tough new regulator being lined up by the party in opposition. As such, their share prices have suffered and, in the long run, could come under a degree of pressure if similar policies are pursued.
National Grid, though, largely avoids such risks and, as such, has proven to be a very reliable income stock in recent years. In fact, it has paid out 40% of its share price from five years ago in dividends since 2010. Looking ahead, and with dividends set to rise by at least as much inflation, the potential for similar levels of income return is very realistic.
Meanwhile, such an outlook may seem unlikely for Morrisons (LSE: MRW), with the UK supermarket sector in dire straits. However, it has a new management team and will adopt a refreshed strategy over the medium term. As such, its current yield of 3.2% has significant scope to grow – especially when you consider that the UK economy is on the up and Morrisons’ dividends are set to be covered 2.3 times by profit next year, thereby providing significant potential for a brisk rise in shareholder payouts. And, with Morrisons having a price to earnings growth (PEG) ratio of just 0.7, it seems to offer excellent value for money as well as superb income potential.
Similarly, UK support services company Carillion (LSE: CLLN) remains a stunning income stock. It currently yields a whopping 5.3% and yet only pays out 55% of profit as a dividend. As such, there is considerable scope for a rise in shareholder payouts and, for example, if it were to pay out two thirds of earnings as a dividend it would equate to a yield of 6.5%. This level of payout would also allow sufficient reinvestment in future growth opportunities and would be likely to further improve investor sentiment in the stock. And, with Carillion having a price to earnings (P/E) ratio of just 10.4, it offers excellent value for money, too.
It’s a similar story with product distributor Electrocomponents (LSE: ECM). It is expected to increase its earnings by around 11% next year, which could stimulate investor sentiment and push its share price higher. And, as well as being an appealing growth stock, Electrocomponents also offers a yield of 5.6%, with dividends having been maintained during the last five years at a similar level to those of the current year. This shows that, while Electrocomponents is a relatively volatile company in terms of its earnings level, it is likely to remain committed to at least maintaining dividends over the medium to long term, which bodes well for its future income appeal.
Meanwhile, replacement vehicle provider, Redde (LSE: REDD), continues to be a surprisingly appealing income play. It currently offers a yield of 5.7% despite its shares having soared by 53% during the course of 2015. As such, there is scope for them to continue their rise – especially if the company can deliver on its forecast for a 6% rise in earnings for the current year. Certainly, Redde has a rather volatile bottom line, with it having made a loss in two of the last four years but, with upside potential and improving investor sentiment, it seems to offer a potent mix of growth and income potential that make it worth buying alongside more stable income plays such as National Grid.
