If I’d put £836 into National Grid shares 5 years ago, here’s what I’d have now

Jon Smith explains how much profit he’d have from National Grid shares if he’d purchased them before the pandemic changed the world.

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Image source: National Grid plc

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Five years ago, we were all blissfully enjoying life before the pandemic hit. The world will never be quite the same place as it was back then. That’s also true for the stock performance. However, it’s really interesting to note stocks that have recovered from the pandemic, versus those that are still struggling. On that note, it’s time to look at how (popular) National Grid (LSE:NG) shares have done.

Talking about profit

Five years ago, National Grid shares were trading at 836p. Let’s assume I bought 100 shares at this price, costing £836 (excluding fees). At the moment, the stock is 1,049p. This marks a 25.5% increase over the period. As for my cash profit, I’d bank an extra £213 if I sold the stock now.

Clearly, the stock’s managed to deal with the pandemic successfully and is performing well. It has outperformed the FTSE 100 index as well. Over the same time period, the FTSE 100 is up 10.3%. So if I’d picked up this stock instead of just investing in a passive index tracker, I’d be very happy.

When I compare the performance to peers, it’s rather more par for the course. Another major FTSE 100 energy company, Centrica, has risen by 25.7% over the five-year stint. This is remarkably similar, but shows that the sector as a whole has held up during and after the pandemic.

A defensive sector

What impresses me about National Grid shares is the defensive nature of the stock. Don’t get me wrong, the share price has experienced falls over the years. But thanks to the nature of the customers that it provides gas and electric to, the share price is robust.

This is because demand (and therefore revenue) is fairly consistent, regardless of how the economy’s doing. Even during a global pandemic people still need electricity to power daily life!

So when I look forward, I think the company could continue to be a good defensive stock for the uncertain future.

Not all plain sailing

The stock might have beaten the FTSE 100 in our comparison, but there are many growth stocks that have achieved much higher gains over this time. It’s true that during a period where investors are excited about new tech, artificial intelligence (AI) and similar themes, National Grid simply isn’t going to be a hot stock.

Further, with a price-to-earnings ratio of 16.41, I’d hardly call it undervalued right now. This could limit further share price appreciation going forward.

Yet on balance, I do feel there’s home for this stock in my portfolio and so I’m thinking about buying it. As the past performance shows, it can act as a good defensive play that should help to hold up the rest of my investment pot during difficult times.

In the meantime, the 5.44% dividend yield can help me pick up some income!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jon Smith 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.

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