The UK economy faces an uncertain future. The coronavirus crisis and Brexit are the two primary challenges companies face over the next 12 months. Many won’t survive, but others could prosper. Against this backdrop, I think one could benefit from owning the National Grid (LSE: NG) share price. That’s why I’m recommending it as one of the best investments for 2021.
National Grid share price benefits
In 2020, National Grid has proven itself as one of the best income investments on the UK market.
Initial figures suggest the total amount of money returned to investors with dividends this year has dropped by around 50%. Many businesses have slashed their dividends to preserve cash in the current environment.
However, National Grid is one of a handful of companies that haven’t suspended their payouts. The group has been able to maintain its dividend policy due to its defensive business model.
As the owner and operator of the vast majority of electricity infrastructure in the UK, demand for the group’s services has remained steady throughout the pandemic. Its US business has also continued to grow. These two divisions have continued to throw off cash, which has allowed the firm to maintain its dividend commitments to investors.
As we advance, I think investors can rely on the National Grid share price to produce a steady income stream. And if the Bank of England decides to introduce negative interest rates in 2021, investors could see substantial capital growth as well.
The stock’s current dividend yield of 5.3% not only makes it attractive compared to the rest of the FTSE 100 but also compared to savings accounts. If the Bank of England does push interest rates below 0%, savers could rush to buy quality income stocks, which could push up the National Grid share price.
Long term investment
That’s why I think the stock could be a great addition to a diversified portfolio of blue-chip investments in 2021. The company also has attractive long-term prospects, in my opinion.
It’s unlikely the business will face any significant competition in the next decade. Even after that, it would be challenging for a new company to replicate National Grid’s extensive infrastructure.
The company has spent decades building out its network and billions of pounds acquiring property and equipment. Even if a new competitor could raise the money required to take on the incumbent, getting regulatory and planning permission may take years.
This implies that one can buy the National Grid share price today with relative confidence that the business will still be throwing off an income five or 10 years from now. I think there are only a handful of other businesses that offer the same kind of attractive qualities and long-term income potential.
Put simply, this investment has the potential to yield large total returns for investors for many years to come.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.