If I had an empty ISA I’d start filling it up by investing in National Grid shares today

National Grid shares will never smash the markets, but with luck should deliver reliable income and growth for years to come.

| 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.

Young Black woman using a debit card at an ATM to withdraw money

Image source: Getty Images

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.

Despite last week’s stock market rebound, UK stocks still look cheap to me. If I had nothing in my Stocks and Shares ISA, I’d be looking to fill it up as soon as I had money to spare.

Starting from scratch, I’d start by playing safe. One option would be simply to buy a FTSE 100 tracker, or FTSE All-Share tracker, to spread my risk across hundreds of stocks. But I prefer to buy individual shares instead.

It’s time to go on grid

There are loads of dirt-cheap dividend stocks I’d love to buy on today’s FTSE 100, but if I was making my first purchase I would play safe. I would go bargain-hunting later on, when my ISA is fuller and I can afford to take on more risk.

Should you invest £1,000 in BP right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if BP made the list?

See the 6 stocks

I’d start by purchasing £38.8bn energy utility National Grid (LSE: NG). The energy distributor is a rarity these days as it holds a monopoly over much of its operations. Better still, it supplies a fundamental component of modern life, electricity. Anyone who’s suffered a power cut knows how much we depend on it.

This also means the bulk of its earnings are subject to statutory regulation, offering more security while also limiting its growth prospects. Investors will never make a million on this stock.

Created with Highcharts 11.4.3National Grid Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

National Grid isn’t particularly cheap. Currently it trades at 16.46 times earnings, notably higher than the FTSE 100 average of 9.9 times earnings. It always seems fully valued, which I see as a mark of its dependability. If I was to delay purchasing National Grid until it was cheaper, I could be waiting a long time. 

The big attraction is the dividend. Today’s 5.3% yield is comfortably above the FTSE 100 average of 3.68%. National Grid’s payout is covered just 1.2 times by earnings, which is thin. Typically, I like my dividends covered twice. Like many utilities, it gets away with that because its earnings are relatively dependable. 

Recent history reassures me because management has steadily increased the payout year after year, from 47.34p in 2019 to 55.44p last year. This would give me a steadily rising income over time, which I’d reinvest back into the stock today, and draw as income when I retire. 

The stock has been rising too

Another concern is that the company had £42.8bn of net debt on March 31 2022, and expected to issue another £5bn across 2023. Servicing costs will have risen due to higher interest rates. This would normally terrify me.

BT Group has half that amount, and I wouldn’t touch it as a result. National Grid is a different beast though. It needs to borrow to invest in its network of wires and pipelines, and its credit retains a BBB+ investment grade rating. Repayments seem well supported by cash flow forecasts, but it does worry me slightly.

Another potential downside is that it can’t make too much money, or it will be accused of profiteering. Politicians could get involved. Things could turn nasty.

Over five years, National Grid’s share price is up a steady 25.33%, with all dividends on top. It’s down 2.5% over 12 months. I could argue that this is a buying opportunity, but I won’t. It’s always a good time to buy National Grid shares, in my view.

Should you buy BP now?

Don’t make any big decisions yet.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.

And he believes they could bring spectacular returns over the next decade.

Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows...

When such enormous changes hit a big industry, informed investors can potentially get rich.

So, with his new report, Mark’s aiming to put more investors in this enviable position.

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

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.

Harvey Jones 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

Investing Articles

FTSE shares: a generational opportunity to get rich?

FTSE shares haven’t rewarded investors as well as they could have done over the past decade. However, this could represent…

Read more »

New year resolutions 2025 on desk. 2025 resolutions list with notebook, coffee cup on table.
Investing Articles

Here are the latest Lloyds share price and dividend forecasts for 2025

The City's outlook for the Lloyds share price in 2025 seems positive right now, but we need to get through…

Read more »

Investing Articles

2 FTSE 100 growth stocks to consider that could help investors reach £1,000,000

Stephen Wright highlights two FTSE 100 stocks with strong growth prospects for the long term that could be ideal for…

Read more »

Investing Articles

Could Greggs shares shine in 2025?

Having given him great profits in the past, Paul Summers remains a huge fan of Greggs shares. Has the time…

Read more »

Investing Articles

Can the S&P 500 rise another 20% this year, or will the FTSE fight back?

Harvey Jones has been dazzled by the stellar performance of the S&P 500, like everyone else. Yet today he'd rather…

Read more »

Investing Articles

ChatGPT thinks this is the best FTSE 100 value stock to consider buying now

Can an AI bot help investors pick great value stocks? Paul Summers runs an experiment to find out and is…

Read more »

Investing Articles

After falling 10% last year, this passive income stock yields 9.9%, and I love it

The FTSE 100 is an absolute treasure trove for passive income seekers right now. It’s packed with top dividend stocks,…

Read more »

Happy young female stock-picker in a cafe
Growth Shares

These FTSE 100 shares boosted my portfolio in 2024. Can they do it again?

Having outperformed all his other FTSE 100 stocks last year, our writer considers whether these two stocks will do well…

Read more »