With inflation currently standing at just 1.6%, it may not seem as though the ultra-loose monetary policies pursued by the Bank of England have had much of a negative impact. After all, the UK economy is growing at a brisk pace and seems to be on course to make further encouraging progress moving forward.
However, over the medium term, the consequences of quantitative easing and historically low interest rates being maintained for over five years could start to show. That’s why National Grid (LSE: NG) (NYSE: NGG.US) could be well worth buying and holding for the long run.
Super Yield
Indeed, ultra-loose monetary policy that increases the money supply can cause high rates of inflation. Certainly, this is not the case right now, since a low oil price, a supermarket price war and competitive domestic energy prices are combining to keep inflation below the 2% target.
However, this could easily change and, in such a situation, high yield stocks such as National Grid could prove to be a major asset. For instance, National Grid currently yields a hugely impressive 4.9%, which is over three times the current rate of inflation. This means that, even if inflation move upwards, investors in the stock are still likely to have a positive income in real terms.
Dividend Growth
However, where National Grid really appeals is in terms of its commitment to increasing dividends per share by at least the rate of inflation. While inflation is just 1.6%, this may seem like a raw deal. However, a higher rate of inflation will make this commitment a major asset to investors in the company and could help them to maintain their current level of disposable income in real terms.
Looking Ahead
With there being continued uncertainty in global markets as the Federal Reserve ends its monthly asset repurchase programme, National Grid could prove to be a strong defensive play. For example, it has a beta of just 0.6 and this means that its share price should (in theory) fall by 0.6% for every 1% fall in the wider index, thereby making it an appealing defensive play.
Certainly, there are companies on the FTSE 100 that come with much better growth potential. However, when it comes to defensive qualities and income prospects, National Grid could boost total returns and help you to retire rich.
