Could National Grid plc and Shire plc really make you rich?
Get rich slowly
Shareholders in power & gas distributor National Grid will no doubt have been delighted with the performance of their investment over the last few years. The shares have risen from 578p in August 2011 to recent highs over £10 - not bad for a boring low-risk defensive stock. What's more, dividend payouts were below 10p per share in 2001, but have risen steadily, and reliably, with around 44p per share forecast for this year.
Of course, dividend payouts don't rise each and every year without good reason, and with National Grid it's the result of steady growth in revenues and earnings year-on-year for over a decade. So existing shareholders will be pretty happy with their long-term stake in National Grid, but what about new investors? Is it too late to buy into the success?
Well, analysts are expecting the growth to continue, at least in the medium term, with consensus forecasts expecting the company to report a 7% rise in earnings for the year just ended in March. Further earnings growth of 3% is expected this year, followed by a more subdued 1% rise pencilled-in for fiscal 2018. The company continues to offer solid dividends, with prospective yields 4.6% and 4.7% for this year, and next.
National Grid trades on 16 times forecast earnings for the year just ended, falling to 15 times for both the current year, and fiscal 2018. In my opinion the shares are still worth buying for their defensive qualities and rising dividends.
Pharmaceuticals group Shire last week announced its first quarter results for the three months to 31 March. The FTSE 100 drug maker reported a rise in pre-tax profit to $491.7m, compared to $471.3m for Q1 2015, with total revenue rising from $1.49bn to $1.71bn. The company also revealed a rise in total sales from $1.42bn to $1.63bn, helped by a strong performance by the company's key product for attention deficit hyperactivity disorder & binge eating, Vyvanse, with sales of $509m during the first three months of the year.
Our friends in the City expect continued growth over the medium term, with analysts talking about an 11% rise in earnings this year, followed by an even better 15% rise earmarked for 2017. The shares are trading on 14 times forecast earnings for this year, falling to 12 for the year ending December 2017. The shares have pulled-back 23% during the last year, and now could be a good time to buy a slice of this successful growth story.
National Grid is a solid low-risk defensive stock suitable for long-term investors happy with slow-but-steady growth, and it offers reliable progressive dividend payouts year after year. In my opinion, a good one to retire on!
In contrast, Shire is all about growth. Dividends are scarce, but growth investors should be looking to buy at current levels, as the shares look undervalued given the strong growth potential. In my opinion both National Grid and Shire could certainly make you wealthier over the long term, albeit in very different ways.
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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.