MR MONEY MAKER: Go for gloriously dull shares at a time of economic anxiety – the National Grid
There are very few guarantees when it comes to investments, especially when trying to grow them.
So in times of fear, people will often turn to ‘real’ assets – those that you can see, hold and even kick if needed. However, such investments will have other drawbacks, such as being illiquid, as with property, or providing no income, as with gold.
So trying to find real assets at a decent price which give you a useful income in nervous times can be hard.
Essential: National Grid has operations in the US and UK and, as the name implies, provides the boring but vital infrastructure of power distribution
So in the face of a damaged economy, albeit one with some hope of a bounce back not too far off, we should be looking for purchases that can show some positive returns, but with some security for comfort.
Why does it matter?
As the optimism on the back of the vaccines spreads from hope to reality, so confidence will return to economies around the globe.
Yes, there will be hiccoughs – just listen to the daily news about new viral variants and the concerns over the effectiveness of the various vaccines.
However, the economic backdrop is definitely changing and even the advent of spring will have an actual benefit, British weather permitting.
So a change of tone will mean that we need to take advantage of this before some prices move ahead of us.
One company that I have followed is gloriously dull, but absolutely essential for us all – the National Grid.
The name hardly sparks of dynamic enthusiasm, but I don’t care.
Look at the business, not at the nomenclature. It has operations in the US and UK and, as the name implies, provides the boring but vital infrastructure of power distribution. So no matter who your chosen provider of services may be, there is a very good chance that this company will be part of that ‘pipeline’.
What should I do?
Like many shares, its price fell dramatically with the onset of the pandemic.
Take a look: National Grid has a dividend yield of over 5 per cent – compare that with a negative interest rate after inflation on your deposit account
This is not surprising if economic demand was going to slow; though it balances out when economic velocity starts to pick up.
Now add to this something I always look for as a key part of the portfolio: a reliable dividend stream to allow me to benefit from the power of compounding over the years.
National Grid has a dividend yield of over 5 per cent – compare that with a negative interest rate after inflation on your deposit account.
In the next few months we will see some dramatic volatility.
National Grid shares fell over 25 per cent last year, and while they may not have the fashionable technological allure of many high tech businesses, actually its technology for managing environmentally acceptable power is very impressive.
So I expect a decent income to come and an increase in the value. Time to lock in some National Grid. Another, lower risk way of gaining exposure to real assets and a consistent income is through one of my favourite investment trusts, Law Debenture, which is a basket of good assets and provides a consistent income as well.
I like it as a combination of good assets and a consistent income as well.
Justin Urquhart Stewart co-founded fund manager 7IM and is chairman of investment platform Regionally.