With the UK just enjoying its warmest-ever November day you can venture outdoors withoutyour scarfand gloves, but your portfolio may need a little protection against chill economic winds. The following three stocks should give you a warm glow inside.
Put The Gas On
Crikey, British Gas ownerCentrica (LSE: CNA) is now yielding almost 6%. As prospects for a base rate hike continually recede, that really is a winter warmer. With Centrica trading at just 11.78 times earnings, you arent overpaying for it either.
There is a reason for these happy numbers: a very unhappy 30% share price slide over the last five years. The troublestarted with Ed Milibands threatened energy price freeze, and things have only got worse since then. Falling profits from upstream gas and power has been a real blow, especially since Centrica has invested more than9bn in this sector since2007. It all ended badly in February with a profit warning and 30% dividend cut
Falling energy demand hasnt helped and I reckon we are in for another mild winter, which wont improvematters. Still, I reckon now looks a tempting entry point for contrarians and Citigroup agrees, naming it one of the best value UK utilities, given that markets have already discounted short-term headwinds from the CMA energy investigation. The turnaround may take time, but while you wait, theres that toastyyield.
National Grid (LSE: NG) has been my favourite utility play for some years. It allows investors to double down on defence,combining the security of a utility with the safety harness ofavirtual monopoly in a heavil regulated industry.
Shareprice growth has been steady as well, up 60% over five years, with few setbacks along the way. Trading at nearly 16 times earnings it isnt cheap, and although you can find higher yields than 4.60%, covered 1.4 times it is reasonably secure. EPS growth prospects are a little disappointing, at 1% in the year to March, and 3% thereafter, especially given its toppy valuation. Another extreme winter in the US could push up its costs, but otherwise this still looks like a national treasure to me.
We Are United
Investors in water company United Utilities Group (LSE: UU) have enjoyed themselves over the last five years, with the share price up a fizzy65% in that time. It has sparkled in recent weeks, helped by aCredit Suisse upgrade to outperform.
Investors may be left feeling a little flat by the valuation of 19 times earnings tied to a slightly soggy yield of 3.8%. There is clearly a premium to pay for investing in solid utility stocksin todays uncertain, low interest rate world.United Utilities has said it aims to grow the dividend at least in line with RPI inflation until 2020, although that isnt much of a pledge in todays deflationary world.
Once again, you have the security of a regulator-determined charging structure and income stream, although the forthcoming liberalisation of the water market, which will include the freedom to switch supplier from next April, may cast a shadow over that. But I think theinvestment case for United Utilities still stands.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended Centrica. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.