With the prospects for the world economy seemingly bright at the present time, many investors may feel that investing in defensive shares such as National Grid (LSE: NG) is not a worthwhile pursuit. After all, the US and Chinese economies are growing at a fast pace, with supportive fiscal and monetary policies set to remain in place over the medium term.
However, National Grid offers much more than just a defensive business model. Its shares appear to offer good value for money, while its dividend growth rate could be highly favourable. As such, buying it now alongside another income stock with positive dividend growth potential could be a shrewd move.
With a dividend yield that is expected to reach 6% in 2019, National Grid continues to offer an income return which is well ahead of inflation. It is likely to at least keep pace with the rate of CPI over the next few years, since the company is aiming to increase dividends at the same rate as inflation for the foreseeable future. This means that its forward dividend yield of 6% could remain highly relevant, even if the pound continues to weaken and inflation spikes as the Brexit process moves ahead.
Since the company’s dividends are due to be covered 1.2 times by profit in the current year, they appear to be highly sustainable. Given the nature of the company’s business, it may be able to offer relatively resilient performance, even if the UK economy experiences a period of difficulty. This could lead to it offering a more robust dividend than many of its FTSE 100 peers. Therefore, at the present time, National Grid could be a worthwhile addition to a long-term focused portfolio.
Also offering an impressive income investing outlook is integrated services and investment banking provider to the shipping and offshore markets Clarkson (LSE: CKN). It released a somewhat mixed set of interim results on Monday which showed that its outlook for the full year remains unchanged from its April update. Although the company’s revenue and pre-tax profit declined by 2.7% and 17.8% respectively versus the same period of the previous year, its outlook for the next financial year appears to be positive.
Clarkson is forecast to post a rise in earnings of 39% in 2019. This puts its shares on a price-to-earnings growth (PEG) ratio of 0.5, which suggests that it could offer a high level of capital growth. It also means that a higher dividend may be affordable, with the company expected to increase dividends per share by 9% per annum over the next two financial years. And with dividend cover forecast to be 1.7 in 2019, its current payout expectations appear to be highly affordable. As such, and while the markets in which the company operates could be volatile, the total return potential on offer seems to be high.
Peter Stephens owns shares of National Grid. 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.