National Grid plc isn't the only dividend growth stock I'd consider buying for my ISA

The performance of National Grid(LSE: NG) in the last year has been hugely disappointing. Its share price has fallen by 25% as investors have become less interested in defensive stocks. Furthermore, the utility sector has experienced increased political risk which has weighed on a number of companies operating in the industry.

Looking ahead though, the company may now offer a wide margin of safety alongside its strong income prospects. However, it's not the only stock that could deliver impressive income returns in the long run.

In-line performance

Reporting on Tuesday was travel company Stagecoach(LSE: SGC). The business released a trading update for the financial year-to-date which showed that it is on target to meet its profit forecasts. As ever, the performance of its business units was mixed. Its UK Rail and Virgin Rail divisions delivered further progress. Their like-for-like (LFL) revenue growth was 3.2% and 2.8% respectively in the 44 weeks to 3 March 2018.

However, the company's North American operations recorded a decline in LFL sales of 0.6%. It was hurt by the timing of contract work and more severe weather than anticipated. Meanwhile, its UK Bus operations saw LFL revenue fall by 4.3% within London and by 0.1% outside of London. Although the company is taking actions to improve its performance, extreme weather conditions weighed on its recent results.

With a dividend yield of 8.8%, Stagecoach is an enticing income prospect. Over the next two years its profitability is due to fall by around 8%-9% per annum. However, with its dividends being covered 1.8 times by profit and the stock trading on a price-to-earnings (P/E) ratio of around 7, it seems to offer a wide margin of safety for the long run. As such, now could be the right time to buy it.

Income potential

Similarly, National Grid could face an uncertain future. The company may continue to be relatively unpopular among investors at a time when the stock market continues to experience a bull run. Furthermore, political risk remains high, with regulatory change having the potential to weigh on the company's financial performance.

However, following its share price fall, the stock now has a dividend yield of around 6%. This is covered 1.3 times by profit, with dividend growth having the potential to match inflation over the next few years. As such, the company continues to have income investing appeal, with its reduced defensive status and popularity being offset by a higher yield and lower valuation.

With a P/E ratio of around 13, National Grid seems to offer good value for money. While in the short run its share price may struggle to outperform a recovering market, within an ISA that is invested for the long run, it may provide a relatively high total return versus many of its sector and index peers.

Buy-And-Hold Investing

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Peter Stephens owns shares of National Grid. The Motley Fool UK has recommended Stagecoach. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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