Severn Trent plc and National Grid plc are great investments for hard times

Here’s why successful investors really like Severn Trent plc (LON: SVT) and National Grid plc (LON: NG).

| 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 the going gets tough, investors turn to safe long-term shares that should be less volatile and offer lower risk. In a way I think that’s a bad strategy, but only because I believe a well-balanced portfolio should always have as many safe shares as it should ever need, whatever the current climate.

Watery goodness

One of my top safe shares, Severn Trent (LSE: SVT), brought us a a solid set of first-half figures today, reporting a 3.2% rise in turnover to £906.8m, with underlying profit before interest and tax up 3.2% to £278.4m. Operational cash generation was up by 7.5%, enabling an interim dividend of 32.6p per share — so the forecast full-year yield of 3.7% looks like it’s in the bag.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

The Severn Trent share price shows a great example of market over-reaction. In the days after the EU referendum, the share price shot up as money flowed from at-risk sectors and was piled onto the safety bandwagon.

But as the realisation set in that, while we’re surely in for harder economic times, the world isn’t actually coming to an end, the Severn Trent share price settled back to its pre-vote levels. Everyone who panicked and piled in during July, August and September has lost money, and the brokers who pocketed all those trading charges are laughing up their sleeves.

Where does that leave rational Severn Trent investors now?

On the one hand, it leaves them looking at shares on forward P/E multiples of around 20 to 21 for this year and next, and by traditional measures that’s pushing it a bit — the long-term FTSE 100 average stands at around the 14 to 15 mark.

But I don’t see that as a problem, as Severn Trent is really a long-term income investment — and those dividend yields of around 3.7% must be among the safest and most reliable there are. If you’re after income for the next few decades and you can lock in a return like that, what does the P/E matter?

Even better?

Then I come to what is probably my favourite utility company, National Grid (LSE: NG). Running the country’s electricity and gas distribution networks makes the company something of a picks and shovels operator — whoever does best in the end-user retail business, National Grid will take its cut.

That’s led to a solid and progressive dividend policy, with forecasts suggesting a yield of 4.8% for the year to March 2017. First-half results earlier this month announced a 15.17p interim dividend in line with policy, so that income is looking pretty unshakeable, especially as it should be more than adequately covered by earnings.

National Grid operates in the US too, with its 2016 revenue split approximately equally between the two markets, and that provides a handy buffer from pound/dollar exchange rates.

Looking at the share price, we again see a sharp rise in the aftermath of the EU referendum, followed by a gradual return to normality over the subsequent few months. Overall the shares have had a flat 12 months, but shareholders have enjoyed a 48% gain over five years to add to their dividend income.

On a forward P/E of around 14, I see National Grid shares as a bargain now.

More on Investing Articles

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

I bought these 4 cheap shares for a market recovery

After months of sitting on my hands, I've finally taken the plunge by buying four cheap shares. Of course, their…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

Here’s why I’m buying more shares in one of my best stocks to buy!

This Fool explains why he is planning on adding further shares of one of his holdings to boost his portfolio.

Read more »

Bearded man writing on notepad in front of computer
Investing Articles

Just 6% of investment trusts make positive return in H1! What should I do?

The returns from investment trusts have so far disappointed this year. Here's why I plan to continue splashing the cash…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

Could this FTSE 100 stock be a bargain to buy and hold?

This Fool believes there are some excellent bargains to be had on the FTSE 100 and details one he is…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

Are these the best income shares to buy in 2022?

Andrew Woods wonders if he should add these two companies to his portfolio to create a consistent income stream.

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

At 41p, are Lloyds shares now too cheap to miss?

As interest rates rise, Andrew Woods asks if now is the time to load up on Lloyds shares.

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

2 dirt-cheap UK shares to buy right now!

Stock market volatility remains very high. This presents excellent opportunities for investors to buy mega-cheap UK shares like these two…

Read more »

Shot of an young Indian businesswoman sitting alone in the office at night and using a digital tablet
Investing Articles

Should I buy soaring Abrdn stock? Or am I too late?

Abrdn stock jumped 8% in Wednesday morning trading. The share price has tanked this year, so maybe its fortunes are…

Read more »