It’s abundantly clear by now that a long downturn is in store for the global economy. It means FTSE 100 investors need to be careful going about their business.
Earlier this month, the International Monetary Fund (IMF) slashed its world GDP forecasts for 2020 and predicted a 3% contraction. It warned also that it could continue to reduce its estimates as the full implications of the Covid-19 steadily emerge.
As I’ve explained before, periods of macroeconomic woe and consequent share market volatility are all part of the investing ‘game’. Over the long term — say 10 years, or more — share pickers can still expect to generate decent returns (of up to 10% a year, studies show).
But the chaos created by the coronavirus is likely to create unwanted waves throughout much of the 2020s. The IMF has described this as “[the] worst economic downturn since the Great Depression.” Let’s not forget the turmoil that followed The Wall Street Crash in 1929 hit both rich and poor countries and lasted throughout the following decade.
For share investors then, it remains a good idea to remain well invested in safe haven shares, those which can continue growing profits from a long-term perspective, irrespective of broader macroeconomic conditions. And FTSE 100 share National Grid (LSE: NG) is a brilliant buy for these turbulent times.
A FTSE 100 dividend hero
Its profits outlook for the coming decade is robust for a multitude of reasons. Electricity is a necessary part of life and so the power grid will still be required, irrespective of economic conditions. The Footsie firm has a monopoly on its operations in the UK. And, finally, the Conservatives’ parliamentary majority is so great that the threat of nationalisation from Labour is unlikely to re-emerge until around 2030, at the earliest.
Now National Grid isn’t totally immune to the slowing economy. Indeed, the FTSE 100 company recently estimated that the impact of Covid-19 on British energy consumption will result in a bill of around half a billion pounds. This reflects the need for power plants to be shut down, for example. And more of these costs could be in the offing as the economy enters a possibly prolonged downturn.
Still, National Grid need not be overly concerned as these are expenses that will ultimately be passed onto the consumer. The profits outlook for the short-to-medium term remains quite stable. City analysts expect the large-cap to follow a 1% earnings rise in the current year (to March 2021) with a slight 2% reversal next year.
Its brilliant earnings visibility provides security for income-seekers too. It lays the foundation for brokers to estimate that annual dividends will keep rising in the medium term. And this creates big yields of 5.5% and 5.6% for financial 2021 and 2022 respectively. Combined with an undemanding forward P/E ratio of 15 times, I reckon National Grid is a top value buy.
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Royston Wild 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.