What characteristics would the perfect stock investment have? How about contributing towards life’s absolute essentials?
National Grid (LSE: NG) (NYSE: NGG.US) certainly does that. It owns the electricity distribution network in England and Wales, and operates the Scottish network. It also part owns and operates high voltage links to France and the Netherlands.
On the gas front, National Grid owns and operates the UK’s gas transmission network from terminals to distributors, together with four of the regional end-customer networks.
And then there’s the supply of electricity and gas to a significant portion of the Northeast states of the USA.
No competition
A captive customer base is also a great help, and high barriers to entry for potential competitors means next year’s income is assured. National Grid has both of those sewn up — nobody else is going to get to build a competing distribution network, and anyone who wants to deliver electricity and gas just has to use National Grid.
Of course, none of that’s any good if you can’t turn it into profit, but there are no worries there.
It’s a regulated industry, but National Grid has been turning in pre-tax profits of better than £2.7bn per year for the past couple of years, and that’s forecast to rise to £2.8bn for the year ending March 2015 followed by almost £3bn a year later.
It has to translate to actual take-home gains for shareholders, and they’re there aplenty.
Price gains
Over the past five years, the National Grid share price has gained 60% compared to only 30% for the FTSE 100 as a whole.
Looking further back things are even better, as National Grid shares didn’t fall as far as the FTSE during the crunch thanks to the defensive characteristics already outlined. In fact, even over the past 12 months the shares are up 18% to 885p, with the FTSE managing only 3%.
But I’ve left the best until last.
On top of that capital growth, National Grid has been paying one of the best and most secure dividends of the entire FTSE. In 2010 the shares yielded a very nice 6.7%, and though that’s been falling a little, yields look to be stabilizing at around 5% (while the FTSE average is around 3%).
Great cash returns
If you’d bought the shares five years ago at around 550p, on top of a 335p price rise you would also have accumulated dividends of 197p per share to almost double your money overall — and if you’d been reinvesting the cash in more shares you would have more than doubled it.
Every stock is ultimately only worth the cash it can eventually pay out to its owners, and the cash cow that is National Grid is paying it out today.
