Stock market

Is National Grid too boring for my Stocks and Shares ISA?

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I consider a number of things when deciding which companies to pop into my stocks and shares ISA.

The first and most obvious is whether it is a solid business with attractive products and services, growing revenues, loyal customers and a defensive ‘moat’ against competitors.

I can then look at the fundamentals, such as its price-to-earnings ratio, production, margins, return on capital employed, etc.

I want a little action.

It also needs to slot in nicely with my current holdings. I would be willing to buy four. FTSE 100 There’s a lot to think about while completely ignoring banks, pharmaceuticals, and here’s some more. I also want some encouragement.

As the author of Idiot, I don’t just want my portfolio to grow in value and fund my retirement. I want it to entertain me too. I like to judge companies, then see how they perform in practice. This is how I learn to be a better investor.

I am not a crazy businessman. Normally, I buy solid FTSE. 100 Blue chips that aim to hold onto them for years and years, while quietly reinvesting their profits to pick up more stocks.

The utility giant National Grid (LSE: NG) fits that description well. It’s not completely risk-free, but it’s about as solid as a stock can be. As a monopoly, its defensive moat is alarmingly high. And as a regulated utility, its revenue is pretty reliable.

Every time I check, the stock is yielding around 5.5%. Right now, the forecast yield is 5.53% for 2024, increasing slightly to 5.69% for 2025.

The valuation of National Grid is also quite expected. Generally, it trades around fair value, because investors know what to expect. The forecast price-to-earnings (P/E) ratio is 14.3 times earnings for 2024 and 13.5 times for 2025. So why have I never bought stocks? It bores me. I want a little more potential action. Am I being shortchanged here?

There are some risks.

National Grid’s share price is not entirely predictable. It has decreased by 8.19% compared to last year. In five years, it has grown by 25.34 percent. Shares always seem to rise 25% over five years, or is it just me?

Throw in that yield, and the total return over five years is heading towards 60%. This is not. Nvidia. But it’s not that boring either.

Here’s something else that isn’t dull. National Grid’s net debt is forecast to reach £44.59bn this year. This is double its forecast sales of £21.54bn. This debt pile is expected to grow to £48.85bn in 2025, while sales will fall to £21.19bn. If it was a company other than a boring utility, it would bother me.

The National Grid has to invest heavily in the energy network, and that eats up cash. The dividend is covered at just 1.2 times, and while utilities can get away with a lower cover, it’s not as solid as I’d like. Stock is not as boring as I thought.

Actually, it bothers me a bit. I think the risk/reward ratio is a bit low and I will look elsewhere for my next stocks and shares ISA purchase.

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