You would think that National Grid (LSE: NG) would be flavour of the month right now. Utilities are a classic play in turbulent times like these, with a series of testing geopolitical and macroeconomic issues — from slowing economic growth in Europe and China and tough Brexit negotiations to interest rate hikes in the States — all casting a shadow over both regional and global economies.
However, investor appetite for the FTSE 100 business still isn’t where I think it should be. While the electricity network operator’s share price has enjoyed a spurt since the turn of January, it still changes hands on a low forward P/E ratio of 14 times.
Given its exceptional defensive qualities I would expect National Grid to command a premium right now. Threats concerning regulation still circulate around the business but it’s unlikely to face the crushing action proposed by Ofgem for the likes of fellow-Footsie stocks Centrica and SSE. Right now National Grid is still in good shape to deliver solid profits and dividend growth over the medium term at least.
Should you invest £1,000 in Barratt Developments right now?
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City analysts agree and they believe the power play will have the confidence to lift the full-year dividend to 47.4p per share in the year to March 2019, a figure that yields a gigantic 6%.
Another underbought beauty
I would say that Barratt Developments (LSE: BDEV) represents an even bigger bargain right now, and certainly so when you look at the FTSE 100 housebuilder’s paper valuation. It carries a forward P/E multiple of 8 times but this isn’t the only reason to celebrate — an estimated 44.9p per share dividend for the fiscal year to June 2019 yields a titanic 8.4%.
It didn’t matter that Barratt and its peers continued to furnish the market with largely-positive trading updates in 2018. Market makers were preoccupied with the Brexit abyss opening up in front of us, and subsequent fears that slumping homes demand in London will worsen and spread to the rest of the country. And this caused these construction stocks to plummet in value.
Extremely unjustly too, in my opinion. So huge is the country’s homes imbalance that, even if a deterioration in the British economy does hamper homebuyer confidence, that demand for Barratt’s new-builds will remain robust.
Not only that, but the mortgage rate war being fought out in the UK means that appetite amongst first-time buyers should continue to be stimulated. Indeed, last week HSBC slashed rates on all 31 of its loan-to-value mortgage products in a sign that competition for custom amongst lenders is doing anything but slowing.
Plummeting property demand from buy-to-let investors of late, allied with those Brexit-related tensions, mean that the stunning earnings rises of previous years may well be at an end. However, I am confident that the market remains robust enough for the likes of Barratt and its peers to keep generating solid profits expansion, and therefore their reputation as brilliant dividend-paying stocks will remain intact. And I’d buy into them before the market wises up to this.
