2017 have been a year of UK FTSE high volatility for many reputable companies with big cap like Dixons, Provident Financials, Next, Pearson, Carllion and BT. These dramas have been mainly cascaded from the outcome of Brexit, high inflation, value of pounds and personal credit. On the media, the UK economy is doing well from the FTSE100 performance yet many companies have lost their market value. I strongly believe the FTSE100 is artificial and not giving the actual guidance on the actual UK economy reflection post Brexit. These are my recommendation for safe investors in this turbulent period.
Hoarding and saving up cash would be a good start. However keeping too much cash in British pounds loses its value on high inflation and degrading exchange rates. I am recommending two stable defensive confident dividend payers and one good potential tech stock. As a team I call them my steady 4-4-2 long ball formation for the remaining of the 2017 season.
First contender I am keeping my hawk eye on is National Grid (NG.L) currently priced at 970GBX with a dividend yield of more than 4.5%. The current price shares reflect stagnation in the market value due to ownership changes and also major expenditure in projects scopes to upkeep its demands. Another reason is the flow of investor cash into other sectors like the bullish mining and housing sector where investors currently find more value. For long term minded investors National Grid is trading at a healthy P/E ratio of 18 and expected profit rise in 2017 and 2018. Utilities and energy providing companies do not shy away from price hike to their customers. As a household customer, we do not have many choices but to pay for our essential needs.
Don’t expect National Grid to rise exponentially or extreme overnight profits. Going through turbulent times you need a stable investment to carry on with a generous dividend reinvestment to compound. Personally I am targeting at below 950GBX before I invest into this company for long term to ensure my broker commission is covered.
Interesting Fact: with a near 5% annual dividend growth reinvested and a 5% growth in share price a year. You potentially could double the initial invested amount in 8 years.
My second stock which I am watching closely is BP shares. You must be wondering why I am actually calling and oil and gas company a good defensive shares. For many key reasons before I actually dip in with my hard earn cash. BP have reduce their cost significantly to widen their profit margin against the current Oil price. Currently BP are hovering about $48 cost a barrel worldwide. They are still going at aiming to $40 a barrel and eventually ambitiously to $30 a barrel. They aggressive cost cutting comes from selling assets, shedding debts, lowering head counts and optimising their work flow structure.
Dividend sits at almost 7% based on their current price of 440GBX. We shouldn’t expect a dividend growth just yet for at least next 2-3 years as projects are required to maintained productions. When the dark cloud clears in 2020 I would expect BP to grow and sustain that growth. There is a good potential for it to go above 550GBX if oil stabilises about the $55-65 mark and BP to reduce their cost down below $35-45. An average of $15-20 a barrel profit. With the current production per year of 1.7 million barrels which makes $25.5m profit per day or $9.3bn gross profit per year.
BP is a continuous long term investment, meaning if BP does drop below 400GBX due to OPEC pricing reasons I would take it as a golden opportunity to buy more. This is far safer than betting my money on other unstable FTSE100 shares out there. Think about it, would you rather put your money on the overpriced Unilever or Dieago? Or would you put your money on risky bargains like BT, ITV, Provident Financials?
Interesting Fact: with a near 7% annual dividend growth reinvested and a 3% growth in share price a year. You potentially could double the initial invested amount in 8 years.
My third recommendation is IQE PLC; a small cap Cardiff-based semi-conductor company with research and innovating approach. They have a strong research background closely link with their academic board and partners. Experts in photonics and silicon wafer. They are currently targeting the innovative phone market like the big boys Apple. Apple is going through a rigorous innovative cycle to keep Samsung away from the top spot. The shares have jumped at least three times its value this year with a slight increase in profit from the previous year. The rumours of IQE PLC supplying Apple with their new Vertical cavity surface-emitting laser technology (VCSEL) to boost the augmented reality features of the upcoming iphone 8/ The speculation is not yet confirmed and the price is currently at 140gbx. This investment is slightly risker but with a huge potential upside.
My strategy is on a 4-4-2 (NG/BP/IQE) ratio deployment. Two defensive and generous dividend payer with still room for some growth as the shares are on a fair valuation. IQE is in my striker position hungry for goals to boost my portfolio up for the remaining of 2017.