Managing your portfolio can be tough at times. Indeed, trying to strike the right balance between income and growth while ensuring that your hard-earned savings don’t get wiped out is a delicate balancing act. And in times like these when uncertainty prevails, it becomes even harder to look after your assets and safeguard against losses.
In times of uncertainty, the best strategy is to buy defensive stocks, which provide a haven in stormy seas. Companies just like National Grid (LSE: NG).
Defensive champion
National Grid is possibly one of the most defensive companies in the UK. The company owns and manages most of the UK’s electricity network, has no serious competitors, and it’s unlikely any newcomer will be able to disrupt the business without decades of work. It would require hundreds of billions of pounds and years of planning for a newcomer to build something even remotely similar to National Grid’s existing network. For this reason, National Grid is almost the perfect investment. The company will be around for many years to come and will continue to churn out income for shareholders.
Shares in National Grid currently support a dividend yield of 4.6% and trade at a forward P/E of 15.6. But City analysts expect the company’s earnings per share to fall by 1% for the year ending 31 March 2017. So if you’re looking for growth, there could be better opportunities out there.
Dominates the market
Like National Grid, BT (LSE: BT.A) already has a huge asset base and infrastructure network in place that would be almost impossible for any competitor to replicate. There has been some talk that regulators may force BT to break up, but as of yet there’s been no enforcement action against the company. With this being the case, it looks as if BT will continue to achieve impressive returns for shareholders for many years to come, thanks the company’s domination of the UK’s telecommunications market.
If the company hits City earnings forecasts for the year ending 31 March 2017, BT will have achieved earnings per share growth of around 30% in six years. Over the same period, the company’s dividend per share has grown by around 90% and the payout is still covered twice by earnings per share.
Shares in BT currently trade at a forward P/E of 14.4 and support a dividend yield of 3.7%.
Impressive returns
SSE (LSE: SSE) has many of the same defensive traits as BT and National Grid but as a regulated utility company, the group is facing some headwinds from regulators in the form of price controls. Still, these restrictions haven’t stopped SSE from generating impressive returns for shareholders over the years.
Since the beginning of SSE’s 2012 financial year, shares in the company produced a total return of 58% including dividends. Over the past five years, SSE has returned £4.30 per share to investors via dividends, around 36% of the company’s share price at the end of the 2012 financial year. Unless SSE loses its competitive edge, these impressive returns should continue for the foreseeable future.
