Financial Reform Boosts Leading Energy Provider
While the U.S. government continues to dither with its budget and the quixotic struggle with Obamacare, the rest of the financial world sits with disbelief at what most are considering needlessly moronic behavior from both political parties.
This is certainly the case with my peers in the financial center of London.
Today I want to lend you one of our favorite overseas income plays — it’s a true British cash cow!
But before we forge forward, let’s talk a little about London, home to my old office!
London is a great town. It’s been my home on three different occasions. I studied and earned a master’s degree at Webster University and its Regent’s College in Regent’s Park. Then one of my first postings with Merrill Lynch International Bank was at the then-newly opened Ropemaker Place.
And later in my career, I was with the asset management division of multicenturies-old Guinness Mahon with Tim Guinness and Lord Howard Flight, which is now part of Investec.
The latest survey of financial and banking leaders by Z/Yen says London is the No. 1 financial center ahead of New York and Tokyo…
It was also a great place to live. I had flats in Kensington, which provided a nice balance of urban amenities with a bit more quiet than central London.
But today, if I were to have the privilege to return, I think that I’d try for Marylebone, not far from Regents Park. Or if the market for dividends gets a bit better, perhaps a small spot in Mayfair, home to several of my favorite eateries and pubs.
I’m currently in West End, which, of course, is the entertainment center of the city, with some of the greatest theatres in the English-speaking world.
And if you find yourself here, one of my favorite after-theatre dining spots is the oldest registered restaurant in England — Rules. The chefs and service staff present some of the greatest of British cuisine. And if you’re quibbling to yourself about the state of British food, you really haven’t given it a try lately.
Some of the best chefs are here making the most of the freshest ingredients. Rules even has its own hunting preserve and fishing streams up in the Pennines in Northwestern England, which provides great game and some of the freshest dishes.
But beyond tourism, London is also one of the greatest markets for investors and traders…
And I’m not alone in my assessment. The latest survey of financial and banking leaders by Z/Yen says London is the No. 1 financial center ahead of New York and Tokyo, despite the challenges of the recent banking crisis.
No wonder that my publisher has a great crew of researchers and financial writers at the office on Black Friars Road. Among the fine collection of publications is the flagship journal, MoneyWeek.
It’s also a great place to get a different perspective of the U.S. market. While the U.S. Congress and the current president dither over a lousy budget, in London, the Tory-led government of David Cameron is moving to reduce its bulging budget.
The government is proposing that folks who are unemployed and on the dole for a long period of time enter into a program that the Chancellor of the Exchequer (their version of a Treasury Secretary) George Osborne calls “Help to Work.”
Folks unable to find work for more than a few months will either have to report to jobs centers for education and training, or be assigned to work in providing services to the government.
The government is also rolling out a series of financial reforms that include tax cuts and reduced spending that is expected to result in a budget surplus before the next general elections in 2015.
If successful, it will be only one of eight budgetary years with a surplus in the postwar history of England.
London is also home one stock I’d like to share with you today.
National Grid (NGG), is the leading provider of electric power and natural gas distribution in England.
Headquartered on the Strand, just off of Trafalgar Square, NGG has been a great performer for my paid-up readers. The stock has delivered a total return of over 57.1% while still paying a dividend yielding over 6.8% (that yield is derived from our entry price, current yield is still a respectable 5.2%.)
The company is one of the true Steady-Eddies of the London market. While revenues are climbing by a subdued rate of only 3.8%, its profit margins run at a nice 25% or better.
This helps to deliver a nice return on equity of over 23.6% to shareholders.
And with steady cashflow from its utility services providing lots of current cash on hand, its debts are quiet low — lower than many of its peers at only 50% or so of its overall assets. This gives it staying power regardless of the direction of the British economy.
And it also is part of the growing number of UK-listed companies that are increasing its payout rate, as noted in today’s Financial Times. But not to worry, its payout ratio is still a very manageable 65%.
Truly, this company will continue to plod on despite the dithering of the U.S. government.
And that’s really the point. While very much front and center of the U.S. press, the markets know that it’s just a show. The government will pay its bills and will be fully back in business soon enough. Meanwhile, we can all just be embarrassed for voting for what appear to be foolish and boorish schoolboys and -girls in their pampered playgrounds on both ends of Pennsylvania Avenue in Washington.
All my best,
Ed. Note: Neil makes an incredibly salient point in this essay: Never pigeonhole your investment decisions by investing only in certain markets. Think outside the box. Look elsewhere. Explore all your options. This is one of the most important things an investor can do. But it’s not that simple… You have to know where to look. And that’s where Daily Resource Hunter comes in. Every morning, it gives readers a unique, in-depth look at the energy and resource markets… and provides no less than 3 chances to get real, actionable investment advice. And it’s completely free! Don’t miss another issue. Sign up for free, right here.
Original article posted on Daily Resource Hunter