NGG Looks Good To Me
Disclaimer: I am not a financial planner and have no formal training or experience in stock analysis. I own shares of NGG and am writing simply to explain my reasoning for buying them.
Rough economic times can cause some investors to seek out large-cap, dividend-paying companies and one company in that area that looks good to me is National Grid (NYSE: NGG).
Here’s my reasoning behind why this is a company worth investing in:
- Warren Buffet likes ‘boring‘ businesses, that is, those whose operations are easy to understand. National Grid is involved in the distribution of natural gas in the UK, and electricity in the UK and northeast US. As far as ‘boring’ goes, few things beat utilities.
- Buffet also likes businesses that will be here today, tomorrow, next week thanks to a large ‘moat‘, as he calls it, some sustainable competitive advantage that makes it hard to topple. In the US and Europe, regulation and the capital intensiveness of energy distribution make it hard to displace a utility company. National Grid (NGG) has a market cap of $20B, putting them on par with The Southern Company (SO), Duke Energy (DUK) and Dominion Resources (D), all of which seem to get more attention than NGG.
- National Grid is a British company with significant US operations. Many people invest too large a portion of their wealth in companies from their native country. A company like National Grid can help to diversify into foreign holdings without dealing with an exclusively foreign operation.
- It’s my utility company. They send me a bill every month and it’s relatively easy for me to keep track of news about them.
- They recently signed an agreement with Cape Wind, which is seeking to build a wind farm off the coast of Massachusetts. One of Cape Wind’s biggest opponents was Ted Kennedy, who has passed away.
- They are profitable and recently managed to raise their rates in the Northeast by 20%, despite the economic downturn.
- Their price is currently around $40, which is about where it was at the very bottom of the 2008 financial collapse. (When their price fell 8% one day last week, it only made them more desirable to me.) Before the collapse they had reached upward of $80/share, which makes me think that as the economy recovers over the next few years, their price has the ability to perhaps double.
- They are paying a dividend of about 6%. That means that for every $2,000 of NGG I own, I essentially get a month’s electricity from them for free each year.
So, to recap: National Grid is a boring business, big and profitable, with operations on both sides of the Atlantic. They have the possibility of doubling in value as economy rebounds and, in the meantime, are still paying a nice dividend. Those are some of the reasons why I say that NGG looks good to me.
If I’ve made a horrible mistake in my logic, or left out an important point, please leave a comment to let me know.
Disclaimer: Again, I am not a financial planner and have no formal training or experience in stock analysis. I own shares of NGG and am writing simply to explain my reasoning for buying them.