In­vestors are over­re­act­ing to Labour’s rad­i­cal poli­cies – Na­tional Grid is a bar­gain

Bri­tain’s en­ergy net­work op­er­a­tor of­fers ris­ing div­i­dends in the face of po­lit­i­cal med­dling, says Sam Brod­beck

The Daily Telegraph - Business - - Business -

LIKE it or not, the risk of a Jeremy Cor­byn-led Labour gov­ern­ment in the not-too-dis­tant fu­ture is real. All it would take is a dis­as­trous exit from the EU in April or a sud­den break­down in Con­ser­va­tiveDUP re­la­tions to trig­ger yet an­other gen­eral elec­tion.

With Mr Cor­byn and John Mc­Don­nell in Down­ing Street, their dread prom­ises to re­na­tion­alise large swathes of pri­vately owned com­pa­nies would be­come gov­ern­ment pol­icy.

It is that fear, Questor be­lieves, that has driven down the share price of Na­tional Grid, Bri­tain’s gas and elec­tric­ity net­work op­er­a­tor. It was the In­come Port­fo­lio’s first pur­chase, two years ago, at £10.58. Yes­ter­day it closed at 799p.

Yet Questor agrees with Beren­berg an­a­lysts that even if Labour were to win a hy­po­thet­i­cal elec­tion it would have to “over­come sig­nif­i­cant fi­nan­cial, po­lit­i­cal, and pos­si­bly le­gal hur­dles in or­der to na­tion­alise”.

Na­tional Grid’s share price may also have been driven down by the glacial rise in in­ter­est rates since Bank Rate rose in Au­gust. It is a clas­sic “bond proxy”, a pro­ducer of steady div­i­dends made pos­si­ble with the in­su­la­tion of its monopoly and a highly reg­u­lated price­con­trolled mar­ket. As such, when rates on bonds and other as­sets rise, its price is bound to fall.

The port­fo­lio bought £25,000 of shares to serve as a depend­able bedrock upon which racier stocks would pro­vide the high in­come nec­es­sary to hit our 5pc yields tar­get.

To date, it has been among our worst per­form­ers on a cap­i­tal ba­sis. But, re­mem­ber, the pur­pose of this port­fo­lio is hard in­come, in pounds and pence, it is not cap­i­tal growth. Though that is of course wel­come, it does not pro­vide im­me­di­ate cash. We have re­ceived £1,773 in div­i­dends so far and this is set to rise. The firm’s pol­icy of rais­ing pay­outs at least in line with the Re­tail Prices In­dex (RPI) looks se­cure for now. The terms of the next set of Ofgem’s price con­trols, which comes into ef­fect in 2021, look rea­son­able. Plans to ex­pand Na­tional Grid’s net­work of “in­ter­con­nec­tors” to main­land Europe and Scan­di­navia should boost rev­enues by up to £250m from 2023, ac­cord­ing to Beren­berg.

It yielded just over 4pc two years ago. At to­day’s price, it is ap­proach­ing 6pc. It re­mains a favourite of Jeremy Lang, man­ager of Questor favourite Arde­vora.

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