I think the National Grid share price could be the FTSE 100’s best buy now

Here’s why I see the National Grid share price as a top buy during the 2020 stock market crash, particularly for dividend investors.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

National Grid (LSE: NG) is a favourite among dividend investors, and it’s been one of the safest during the Covid-19 crash. The National Grid share price did fall 25% in the early days of the pandemic-induced lockdown. But thanks to a strong start to the year and a recent recovery, it’s actually up 3.5% so far in 2020.

But, during the kind of stock market crash we’re experiencing now, shouldn’t we ignore the safe and unaffected ones? Should we not, instead, look among the biggest fallers for the most promising recovery stocks? With the National Grid share price in positive territory this year, there’s little recovery to be had there.

Always buy the best

Well, I definitely do see a stock market slump as a great time to buy oversold fallers. But I also think that some of the best stocks to buy during a slump are the very same ones to buy all the time. In my view, that’s solid FTSE 100 stocks paying dependable dividends.

Now, there are plenty of those, so why National Grid? Especially when the year ended 31 March produced a profit fall? Full-year results showed a statutory pre-tax loss of 5%, leading to a fall in earnings per share (EPS) of 17%.

But there’s more to it than that. National Grid reported a small underlying pre-tax profit gain of 1%, while underlying EPS dropped 1%. That’s plodding rather than exciting. But the National Grid share price isn’t supposed to be an exciting one. And it’s not a company to pursue for year-on-year growth.

Long-term fortunes

No, National Grid’s long-term fortunes will reflect the wider markets and the economy. When we have tough years and weaker demand, it will reflect that. On that basis, I’m satisfied with that 2019-20 outcome, and with the share price’s progress.

The bigger part of the lockdown hit has come after National Grid’s year-end. So shareholders should expect further weakness for the current year due to falling energy demand too. And, I do see that as a threat to some of our energy suppliers.

British Gas owner Centrica, for example, has been struggling against smaller new competitors in recent years. And it’s suffered a loss of customers who have jumped ship for better deals. It’s still stuck with poor opinions on customer service too. That’s perhaps institutionalised from the days when British Gas’s monopoly status meant it didn’t need any, but it has to change.

Solid income stream

I see both threats and opportunities for the end-user energy suppliers. But how that competition goes really shouldn’t have much effect on the National Grid share price. If consumers decide to get their energy from Centrica or one of the other big suppliers, or if they plump for the smaller newcomers, it just doesn’t matter.

They all have to send their electricity and gas through the national distribution networks. And that’s National Grid.

And among tumbling FTSE 100 dividends, the National Grid one has kept up. For 2019-20 it has been boosted by 2.6%, for a 5% yield. In the short term the dividend might come under some pressure, but in the long term I expect a solid income stream. 

On a price-to-earnings multiple of around 16, I rate National Grid a buy.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft 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.

More on Investing Articles

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »