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Why Your ISA Should Benefit From Holding National Grid plc, Royal Mail PLC And Drax Group Plc

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.

National Grid

While National Grid’s (LSE: NG) (NYSE: NGG.US) headline yield of 5% may be enough to attract many investors towards buying the stock, the company’s future dividend growth rate could prove to be even more important over the long run. That’s because, while inflation has fallen to zero in February, in the long run it is highly unlikely that it will remain so low. As such, National Grid’s goal of increasing dividends by at least as much as inflation could, in time, prove to be a highly attractive asset to have and allow investors in the company to enjoy a real terms increase in their income over a sustained period.

In addition, National Grid offers vast stability and a consistency that is difficult to match in the FTSE 100. Therefore, while the next few months could prove to be turbulent for the wider index, National Grid should offer relative stability, as well as a bright long term future in terms of increasing investor demand pushing its share price higher.

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Royal Mail

Although Royal Mail (LSE: RMG) (NASDAQOTH: ROYMF.US) is facing considerable potential within the parcel delivery space, it continues to offer excellent value, growth and income potential. For example, it is forecast to increase its bottom line by 13% in the next financial year. This is an impressive rate of growth – especially since Royal Mail trades on a lower price to earnings (P/E) ratio than the FTSE 100, with it having a P/E ratio of 14.8 versus 16 for the wider index.

In addition, Royal Mail’s share price fall over the last year (its shares are down by 23%) now means that it offers an even better yield. In fact, it now yields a very impressive 4.7% and, with dividends being covered 1.5 times by profit, its shareholder payouts appear to be very sustainable.

Drax

It’s been a challenging few years for Drax (LSE: DRX), with the power station seeing its earnings fall by 63% since 2010. As such, the company’s share price has fallen considerably and, in the last year for example, it is down by 48%.

However, Drax’s future could be much improved, with it being forecast to increase its bottom line by 25% next year. And, with it having a P/E ratio of 21.9, this equates to a PEG ratio of just 0.8, which indicates that its shares are undervalued at the present time. Furthermore, with Drax having a forward dividend yield of 3.2%, it remains a relatively appealing income play that could see its shareholder payouts increase rapidly over the medium term. Therefore, despite a troubled recent past, Drax could be a sound long term buy for your ISA.

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Peter Stephens owns shares of National Grid. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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