MENU

Beat A Volatile FTSE 100 With Centrica PLC, SSE PLC And Severn Trent Plc

Since the last week of August, the FTSE 100 has been up and down like a yo-yo. Indeed, it feels as though investors simply cannot make their mind up as to whether the index is deserving of a fall or a rise and, as a result, it appears to overextend itself when moving up before doing the exact same on the way down – often on the very next day.

This volatility is, of course, rather nerve-wracking for many investors who rely upon their portfolios either for an income or for their retirement plans. As such, lower volatility stocks have considerable appeal, but many investors often discount them because they are seen as lacking capital growth potential.

However, Centrica (LSE: CNA), for example, offers a potent mix of growth, income and stability at the present time. Its shares currently yield a very appealing 5.1%, even after the company rebased its dividend by 30% earlier in the year. This means that its shares are likely to have a strong support level since dividends are well-covered at 1.5 times and demand from investors seeking sustainable income plays like Centrica is likely to remain high — especially with interest rates unlikely to rise at a rapid rate.

Looking ahead, Centrica is likely to be a very different business in five years’ time than it is today. It is seeking to sell off its oil and gas assets, with the company’s new management team deciding that its future lies in the more predictable domestic energy supply market. Alongside this, Centrica is aiming to cut costs by £750m per annum between now and 2020, which would help to improve margins and profitability. Trading on a price to earnings (P/E) ratio of 13.2 and forecast to return to profit growth next year, it appears to be a sound buy at the present time.

Likewise, SSE (LSE: SSE) offers the potential for excellent gains and reduced volatility. It has a beta of just 0.88, which means that its shares should change in value by 0.88% for every 1% move in the wider index. Alongside a yield of 5.9%, this should provide the company’s investors with a relatively resilient and less volatile experience in the coming months.

Meanwhile, SSE is due to increase its bottom line by 5% next year, which is roughly in-line with the growth rate of the wider index. However, it trades on a P/E ratio of only 13.3, which indicates that an upward rerating is on the cards. Plus, with reduced political risk resulting from a Conservative majority win in the General Election, investor sentiment towards the company may become stronger in future than it has been in the past.

Water services company Severn Trent (LSE: SVT) also has a low beta of 0.79 and comes with considerable bid potential. It has, of course, been the subject of takeover speculation in recent years and, with interest rates unlikely to rise significantly in future and market volatility being high, infrastructure assets such as Severn Trent continue to have great appeal.

Furthermore, it appears to be well-placed to overcome the water market liberalisation in 2017 and, with a yield of 3.7%, remains a very enticing income play. And, unlike domestic energy suppliers, water services companies suffer from far less political risk, which makes them even more stable investments over the medium to long term.

Of course, Centrica, Severn Trent and SSE aren't the only appealing defensive, income stocks in the FTSE 100. That's why the analysts at The Motley Fool have written a free and without obligation guide called How To Create Dividends For Life.

It's a simple and straightforward guide that you can put to use on your own portfolio right away. And, in time, it could help you to build a great income from your investments and retire early, pay off the mortgage, or simply enjoy a more abundant lifestyle.

Click here to get your copy of the guide - it's completely free and comes without any obligation.

Peter Stephens owns shares of Centrica, Severn Trent, and SSE. The Motley Fool UK has recommended Centrica. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.