A UK stock I would like to add to my holdings before any potential recession is National Grid (LSE:NG).
Recession on the cards?
Soaring inflation and rising interest rates have prompted fears a recession is around the corner. Of course, no one can predict the future. In preparation, I have a watch list of stocks that have defensive capabilities and may continue to perform despite the economic outlook.
Let’s take a closer look at National Grid then. As a quick reminder, it is the UK’s electricity system operator providing everyone in the UK with power. It also owns an operation in the US where it powers 20m customers in Massachusetts, New York, and Rhode Island.
What is the current state of play with the National Grid share price? Well, the UK stock is flying high and the shares are currently trading for 1,125p. At this time last year, the shares were trading for 931p, which is a 30% increase over a 12-month period. When the stock market correction occurred in March, the shares weren’t affected.
The positives
I referred above to defensive capabilities and National Grid has this in spades, in my opinion. After all, the demand for electricity will not fully cease, no matter the economic outlook. Defensive stocks tend to see performance, share price, and returns remain constant in tougher times. National Grid is a vital component to the UK’s infrastructure and crucial to its defensive capabilities.
National Grid has a good record of performance too. I do understand that past performance is not a guarantee of the future, however. In addition to this, it has continued to grow operations, which tend to underpin performance growth and shareholder returns. It grows through organic investment into operations as well as through acquisitions.
Many investors view National Grid as a top dividend stock. Currently, National Grid shares carry a juicy dividend yield of over 4%. The FTSE 100 average yield is between 3% and 4%. It is a top UK stock for dividends in my opinion due to its record of payout as well as consistency. It is worth remembering dividends can be cancelled, of course.
A UK stock with risks and my verdict
One risk that could affect National Grid shares is its debt level currently. The fact that interest rates are rising could mean servicing this debt could be more expensive. In turn, this could impact shareholder returns.
Another issue I see currently with National Grid is that the shares could be viewed as costly. They trade on a price-to-earnings ratio of 30. The FTSE 100 average is 15.
Finally, regulatory pressures are always an issue for businesses like National Grid. Regulators want businesses to charge customers less and invest more into infrastructure. This could affect shareholder returns too.
As a long-term investor, I want some of my holdings to be safe, defensive options. In times of economic uncertainty many investors also opt for safer options too and I think National Grid is an ideal UK stock. I’d happily add National Grid shares to my holdings if a recession were to occur.
