Recent brutality on financial markets has finally taken a breather on Friday. Phew. Investors hope that more Bank of England monetary loosening (as announced yesterday) will help stave off economic armageddon. They’re quietly confident that Chancellor Rishi Sunak is hours away from announcing more government help for battered business too.
Share pickers desperately need respite after the shocking bloodbath on equity markets of the past month. Things can change very quickly in this fast-moving crisis, though, so investors need to keep taking steps to protect themselves. News of spiking infection rates, and failures to find a treatment and vaccine for coronavirus in the coming days, could easily send stock exchanges into a tailspin again.
Defensive dynamo
One great way to keep investing in a safe and sensible way is by buying shares in utility companies. For some, they’re the ultimate safe-haven asset.. The services of these businesses — whether it be supplying water, electricity, broadband or waste management services — will remain essential however hard the coronavirus hits the UK economy.
I recently explained why National Grid is one great way for FTSE 100 investors to play this theme. United Utilities Group (LSE: UU) is a similarly-great buy in these troubled times.
This business provides water and wastewater services in the North West of England. It therefore doesn’t have to worry about the sort of earnings turbulence that most of the broader market is expecting. If anything, contamination fears have driven demand for water through the roof more recently as we collectively wash our hands like never before.
In recent days, United Utilities has received an extra, less obvious, boost. Those extra Bank of England rate reductions this week make it cheaper for the firm to service its enormous debt mountain. Fresh from cutting the benchmark to 0.25% last week, the bank went one step further and cut it to new record lows of 0.1% on Thursday. And a reduction all the way back to zero still can’t be ruled out.
Too cheap to miss
United Utilities hasn’t been spared the rout that has enveloped share markets over the past month. Just as a high tide lifts all boats, plummeting investor confidence can pull all stocks — regardless of their risk profile and their overall quality — below the surface as well.
There are two important things to note though. Firstly, United Utilities’ 19% price drop over the past month is less than the comparable 30% decline endured by the broader FTSE 100. This illustrates the water giant’s supreme defensive qualities versus most other blue-chips.
And next, at least from a long-term buyer’s perspective, this provides a terrific dip-buying opportunity. At current prices, United Utilities deals on a cheap forward price-to-earnings (P/E) ratio of 14.6 times. It boasts a meaty 5% dividend yield too. The defensiveness of its operations means that it’s in much better shape to make good on its dividend forecasts than much of the broader market. This is one share that I think all income investors need to pay serious attention to today.
