It has always fascinated me that the minutes of the Federal Reserve meeting are released to the general public.
Certainly, I admire the Fed’s transparency and congratulate it on trying to show the markets that it remains accountable. However, I can’t help but feel that the release of minutes which show that, ultimately, Fed members do not agree, only serves to create more uncertainty than is necessary.
Indeed, this is the situation after the recent release of the Fed minutes. They show that officials vigorously debated changing the trigger for eventual increases in US interest rates. Any such move would, of course, be likely to provide reassurance to the markets about the pace of any forthcoming exit from vastly loose monetary policy.
However, the minutes showed that there was substantial disagreement regarding whether the unemployment threshold (at which point interest rates would rise) should be lowered from the current 6.5% rate.
Such a move could reassure investors that a rate increase is not imminent. However, by releasing the minutes, I feel the Fed has created considerable uncertainty, leading to significant volatility in equity markets of late.
Such volatility makes me gravitate towards a stock that I regard as highly reliable and relatively safe. That stock is National Grid (LSE: NG) (NYSE: NGG.US).
Of course, no stock is completely safe but, when markets are volatile, National Grid impresses me for three main reasons.
Firstly, it usually has a beta of less than 1. This means that if markets were to fall, National Grid’s share price should (in theory) fall less than the market. The flip side, of course, is that if markets go up, National Grid should (in theory) lag the gains on a relative basis, but is likely to still make gains on an absolute basis.
Secondly, the shares are currently trading on a price to earnings (P/E) ratio of just 13.4. This compares favourably to the FTSE 100 index on 14.6 and also to the wider utilities industry group on 14.4.
Thirdly, while the share price is bobbing around, National Grid’s dividend maintains a steady income for me. Indeed, the shares yield an impressive 5.4%. What makes this yield even better, though, is the fact that its growth rate is linked to inflation, with National Grid stating that it will seek to increase dividends per share at least in-line with the retail price index.
Of course, a 5.4% yield is considerably better than that offered by savings accounts and currently beats inflation. For income-seeking investors such as me, this is very welcome indeed and makes me want to buy shares in National Grid.
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> Peter does not own shares in National Grid.