The FTSE 100 index’s increasingly uncertain outlook could boost the appeal of defensive stocks such as National Grid (LON: NG) and SSE (LON: SSE). Their future financial performances are less dependent on the economic outlook than many of their index peers.
Furthermore, both companies offer relatively attractive long-term income prospects. And with recent results suggesting their growth strategies are making strong progress, they could offer index-beating total returns in the coming years.
SSE
SSE’s share price has risen by 9% in the past year versus a flat performance for the FTSE 100. Despite this, the renewable energy firm’s dividend yield of 5.2% stands 180 basis points higher than the index’s 3.4% yield
In addition, the company offers a brisk pace of future dividend growth. It raised dividends per share by 5.8% in its latest full-year results and expects to increase shareholder payouts at the same rate as RPI in the current year. This could make the stock increasingly appealing if, as the Bank of England forecasts, inflation continues to rise over the coming months.
Alongside their income appeal, SSE’s shares offer capital growth potential. The company is investing heavily in renewables infrastructure. For example, its strategic capital investment plan is on track and is expected to amount to around £12.5bn by 2026. It forecasts adjusted earnings growth of between 7% and 10% through to 2026, which could act as a catalyst on its share price.
Clearly, the company’s financial performance is dependent on weather conditions over a short time period. This could mean it is somewhat volatile compared to other utility firms. But with the world continuing its push towards renewable energy and SSE having the potential to operate across a variety of assets and geographies, its total return potential over the coming years appears to be high.
National Grid
National Grid’s share price has also outperformed the FTSE 100 index in the past year. It is up 13% but still offers a highly appealing dividend yield of 4.9%. In addition, the firm is aiming to match the rate of inflation (CPIH) when increasing shareholder payouts over the coming years. This could make it a highly desirable income stock during the current period of high inflation.
Furthermore, its defensive characteristics mean that it could hold significant appeal while the economy’s outlook remains highly uncertain. Its relatively low reliance on macroeconomic performance means its popularity could increase should investor sentiment decline.
In terms of growth potential, the company is seeking to align itself with evolving energy needs. For example, it recently purchased the UK’s largest electricity distributor, WPD. This shifts its focus increasingly towards electricity infrastructure, with 70% of its asset base now focused on electricity versus 60% as of last year.
With demand for electric vehicles set to soar as regulatory changes force consumers to ditch petrol and diesel cars, National Grid could be in a strong position to capitalise on rising electricity demand. In fact, sales of electric vehicles have increased by 71% year-to-date and their numbers are expected to rise 37-fold in the UK by 2050. This could mean the firm enjoys improving operating conditions that lead to further FTSE 100 outperformance in the long run.