If you have no savings by the age of 50, there’s still time. I believe these three shares have significant turnaround potential, meaning I think they should outperform over the next five years.
Risk of nationalisation
Utility group National Grid (LSE: NG) could be at risk of being nationalised if a Labour government is elected. It faces other risks as well from tighter price caps under Ofgem, relations with politicians in the US, and perhaps from interest rate rises because it carries a lot of debt – around £28bn – although high levels of debt aren’t unusual for a utility.
These risks aside, the reason I believe that over a longer timeframe it could reward shareholders is because it pays a steady, growing, high-dividend yield. This currently stands at 5.6%. The policy of the business is to grow the full-year dividend by at least the rate of RPI inflation.
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The company also is growing in the US. There operating profits rose by 16% to £525m during the most recent half-year. In the US, National Grid has also splashed out £209m on Geronimo, a wind and solar developer. This steady performer ideally suits someone starting out in investment.
Suffering in India
Telecoms giant Vodafone (LSE: VOD) is another company going through some turmoil – with the upside being the share price has fallen. In the case of Vodafone, the big trouble it’s facing is in India where it has been ordered to pay huge backdated taxes – leading to it threatening to leave the country.
For investors though I think the performance of the business is a reason for optimism and the dividend is a reason for investing. In the second quarter growth accelerated to 0.7% and underlying operating profits during the first half jumped by 4.2% to €2.2bn.
A cut to the dividend this year has made the payouts to investors more sustainable and the group still offers an above-average yield of 5%. This is the biggest attraction for the shares right now and I think it’ll help investors make a neat return from the share price until acquisitions produce a bigger boost to growth.
Competing with Amazon and Netflix
Broadcaster ITV (LSE: ITV) also faces big operating challenges. It has launched Britbox along with the BBC to try and counter the rise of US streaming services such as Netflix and Amazon. Brexit is also not helping big business open their wallets to spend money on advertising, which is hitting ITV’s revenues.
The failure in recent times of the ITV Studios division to produce significant growth is worrying as it coincides with decreasing advertising revenue. Performance-wise, the achievement of ITV Hub reaching its target of 30m registered users two years ahead of plan is a positive.
The success of Britbox – which is far from guaranteed – and the success of the strategy of going direct to consumer, will I think be key in the next five years to how the share price does. With a price-to-earnings ratio near 9 and a dividend yield of about 6%, I think the shares do have potential longer term.
