With the Conservatives’ thumping victory last night came the subsequent toppling of Labour’s plan of mass nationalisation. It’s not a surprise then to see telecoms giant BT Group, power plays National Grid and Centrica, courier Royal Mail and the water providers like United Utilities Group among the leading soarers on Friday.
But don’t get too excited, I say. The impact of a slowing economy and weaker household spending power might prompt fresh waves of volatility for some of these shares in 2020. But I reckon that the landscape is perfect for utilities providers (except Centrica given its sinking customer base) as an environment of extreme geopolitical and macroeconomic uncertainty boosts investor demand for classic safe-haven assets.
Brexit fears remain
Most pertinently for UK investors right now, any near-term uncertainty over the country’s Brexit path has been resolved. The Tory party’s new 80-seat majority will give it the power to pull out of the European Union by January 31. It has also taken the threat of a catastrophic no-deal withdrawal off of the table early next year.
However, the clarity created by last night’s result will start to dribble away even before Britain waves goodbye to the EU27 next month. Arguably, the Article 50 process was the easy part of the Brexit saga, even though it’s one that will have taken more than three years to complete. Any hopes that government can get a complicated trade deal knocked out by the end of 2020, as per prime minister Johnson’s rigid timetable, look quite pie-in-the-sky to me.
It’s possible that Boris will backslide on this pledge, as he did with his promise to pull the UK out of the continental trading club by October, lest a no-deal exit be put back on the table. But investor fears, and therefore their demand for rush-to-safety shares like utilities, defence and pharmaceuticals, could see heightened levels of buying as we hurtle towards that December 31 2020 deadline.
Perfect dividend stocks for 2020
And so the utilities providers could be among those few UK-focused firms whose share prices rises as we move through 2020, and quite likely beyond in the event of another Brexit-related extension or a disorderly exit. Though it’s critical to remember that matters outside of these shores — whether it be jitters over sluggish economic growth elsewhere, US-led trade wars with many of its international partners, or rising political tension between the West and long-running adversaries like North Korea and Iran — could support investor buying too.
I would argue that buying up shares in water providers United Utilities and Severn Trent, along with power network provider National Grid, providers of essential commodities with few competitive worries, is a good idea as we embark on the new year. And right now, even in spite of today’s large share price gains, these firms still offer massive dividend yields: 4.6% at United Utilities, 4.1% at Severn Trent, and an even-better 5.2% at National Grid.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.
Motley Fool UK 2019