When looking for income stocks, National Grid (LSE: NG.) and Legal & General (LSE: LGEN) are two of the best options out there, in my opinion. I do understand that dividends are never guaranteed. However, here’s why I’m a fan of both stocks and why investors should consider buying some shares.
As the owner and operator of the electric and gas transmission system in England and Wales, National Grid has excellent defensive traits. This is because energy is essential. This can help protect earnings and boost passive income. Plus, it owns assets to provide energy to three states in the US, offering further income and potential shareholder returns.
As I write, National Grid shares are trading for 970p. At this time last year, they were trading for 883p, which is a 9% increase over a 12-month period. This rise is impressive and demonstrates my point around defensive traits. No matter the economic outlook, gas and electricity is a must. Many other income stocks have fallen due to recent market and macroeconomic volatility.
National Grid shares look dirt-cheap to me on a price-to-earnings ratio of just four. Furthermore, a dividend yield of 5.8% is higher than the FTSE 100 average of 3.8%.
Two main risks concern me when it comes to National Grid. First of all, it operates in a heavily regulated environment. This means investor returns could be capped. The other issue is that the cost of maintaining such expensive assets could hinder its profits and investor return levels too.
Legal & General
Financial services stocks have often been seen as safe-haven income stocks, albeit with risks to consider. Legal & General shares look like a great option to boost passive income right now.
To start with, Legal has a diverse offering, with insurance, investment, and pension products available to its customers. Diversification is a plus point, as it can offer protection during times of volatility. A burgeoning arm of the business can help offset another experiencing difficulties, for example.
As I write, Legal shares are trading for 220p. At this time last year, they were trading for 212p, which is a 3% increase over a 12-month period.
Legal shares look great value for money on a price-to-earnings ratio of just six. Furthermore, a dividend yield of 9% is extremely enticing. In addition to this, Legal possesses an excellent record of paying out dividends. However, I’m aware that past performance is not a guarantee of the future.
The main risk Legal shares face at present is that its investment arm is linked to US equity and credit markets. Rising interest rates and economic volatility could hinder this part of Legal’s business, which in turn, could impact performance and returns.
Income stocks I would buy
When I next have some spare cash to invest, I’d buy National Grid and Legal & General shares for my holdings. I believe investors should consider snapping up some shares too.
Both businesses have good fundamentals, enticing passive income opportunities, as well as cheap valuations at the moment as markets struggle.