So the question is, can the Centrica share price recover to its pre-pandemic levels in 2021? And should I be adding the company to my portfolio?

The rising Centrica share price

Centrica is a utility provider for both businesses and residential properties. The firm suffered a £362m operating loss last year, primarily due to the disruptions from Covid-19. After all, with office buildings being mainly empty and regulators placing price caps on energy tariffs, the operating environment for the business has not exactly been ideal. So why is the Centrica share price going up?

Despite the seemingly poor performance, 2020 losses were actually halved compared to 2019. Meanwhile, as the economy begins to reopen, energy price limits are being lifted, easing the pressure on the company’s profit margins. In addition, the restructuring process of Centrica has also continued with the sale of its North American operation, Direct Energy. The deal flooded the balance sheet with £3.6bn of cash. And with its newly strengthened financial position, the management team cut down debts by £412m.

Overall, while the restructuring process is far from finished, it looks like the worst may have passed. And given that the Centrica share price is rising, I think it’s fair to say that I’m not alone in that opinion.

Some rising concerns

As encouraging as these results may be, the business still faces a considerable level of risk. The most prominent is the falling number of British Gas energy customers. While this figure remained relatively unchanged in the second half of 2020, it fell by around 2% in the first half. That’s the equivalent 164,000 customers switching to a competitor. What’s more, this decline included the additional 85,000 customers gained after the Robin Hood Energy acquisition.

Today the company has around 6.9m residential energy customers. By comparison, in 2015, this figure was closer to 14.6m. Needless to say, the company has performed poorly in retaining its customers over the years.

Whether the firm’s new strategies will be capable of reversing the falling popularity of British Gas within the residential energy sector has yet to be seen. But if it fails to do so, then Centrica’s customer numbers are likely to continue falling, taking its share price with it.

The bottom line

As the economy begins to reopen and people return to work, Ofcom has already started lifting the energy price caps again, helping Centrica’s profit margins. This may be sufficient to get the business back to its pre-pandemic levels in 2021. However, I remain pretty sceptical about its long-term prospects.

At this stage, I don’t think there’s enough information to determine whether the company’s restructuring will be sufficient to turn it around. And therefore, it’s staying on my watch list for now.

The post The Centrica share price rises: should I buy now? appeared first on The Twelfth Magpie.

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Zaven Boyrazian does not own shares in Centrica. 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.

The problem with Premium Bonds

Premium Bonds aren’t hard to fathom. For every £1 you save, you’ll receive a bond. Each bond you own has an equal chance of winning a prize in a monthly draw. Just like the lottery, the more bonds you own, the better your chances. Prizes range from £25 to a staggering £1m! However, it’s important to recognise that there’s a high chance you’ll win absolutely nothing. As such, it’s probably better to look at the annual prize rate. 

This has been calculated as a paltry 1.4%. In other words, you’ll receive just £1.40 for every £100 you put in. It gets worse. In September, NS&I announced that the prize rate will drop from 1.4% to 1% from December. That’s barely above inflation.

The fact that prizes are paid tax-free isn’t even an incentive anymore. After all, the Personal Savings Allowance — introduced in 2016 — means that any interest earned on savings is paid tax-free. Unless you’re earning more than £1,000 interest a year as a basic rate taxpayer, you’ll never pay a penny back.  

Given the above, I’d be far more likely to put my money in another ‘national’ investment.

Steady share

When it comes to defensive shares, FTSE 100 member National Grid (LSE: NG) is up there with the best of them, I feel. Regardless of whether the economy is tanking or not, we all need power. The Grid supplies gas and electricity to millions of customers every day. It’s perhaps no surprise that today’s interim numbers were, well, unsurprising. 

Thanks to the coronavirus, underlying operating profit fell 12% to £1.1bn over the six months to the end of September compared to the same period in 2019. The company also had to deal with bad debts and costs relating to storms. 

Dividend delight

But let’s not beat about the bush: National Grid will never double its share price overnight. The primary attraction of the shares will always be its dividends. Today, the £34bn cap revealed a 3% rise to its interim payout to 17p per share. 

If analysts are correct, we should expect the FTSE 100 constituent to return 49.5p for FY21 as a whole. Based on the current share price, that gives a juicy yield of 5.2%. That’s a lot more tempting than throwing my cash at Premium Bonds. 

Sadly, these dividends can never be guaranteed. Nevertheless, I find it hard to fathom a situation in which the Grid fails to pay up.

If I really want to grow my wealth, the strategy is simple: just reinvest what I receive back into the market, sit back and let compounding work its magic. 

Dividend investing won’t quicken the pulse, but it’s more likely to be successful than buying Premium Bonds.

The post Forget NS&I Premium Bonds. I’d buy this FTSE 100 share for its 5% dividend appeared first on The Twelfth Magpie.

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Paul Summers 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.

In fact, its coronavirus-related stock fall of 8% has been comparatively small. So far, the UK stock market appears to be unconcerned by the electricity distributor’s 2020 fiscal year reports of lower pre-tax profits and a forecast underlying earnings hit of £400m for 2021. We’ll see if this lasts.

But for now, the firm’s share price is climbing again. 

National Grid share price

The share price has demonstrated positive growth over time looking as far back as 1995. However, increased competition, tougher regulation, and collapsing profitability in the thermal generation sector resulted in lower margins throughout 2016/17.

The stock price reacted accordingly, underperforming the wider FTSE 100 Index. But the coronavirus pandemic flipped this on its head. The power generation firm returned a positive 0.4% return over the last six months, compared with a negative 18.1% for the FTSE 100 as a whole.

National Grid owns power generation facilities in the US and the UK but its returns on these regulated assets have been dropping over time. Indeed, its reported figures show a 9.7% drop in earnings per share over the last five years.

However, regulators set utility tariffs in line with interest rates. And in the current environment of ultra-low rates, this is to be expected. I suspect this is already incorporated into the share price.

National Grid dividend – the downsides

National Grid offers a juicy dividend with a 5.1% yield. Moreover, despite the recent bad news of lower profits, the firm is sticking with its dividend for the next financial year.

However, in 2019, it paid more in dividends than it made in either profits or free cash flow. Consequently, its payouts weren’t covered by either earnings or cash. Lower profits this year, combined with a small dividend increase, makes me nervous for the future. A dividend cut may be likely at some point.

That said, the dividend has been stable over the last 10 years. I calculated a compound annual growth rate of around 2.1% which is very impressive. But, unless National Grid can start increasing its margins, this will be unsustainable.

As a natural monopoly, National Grid should be in a good position to do this. Moreover, CEO John Pettigrew expects any economic damage from the Covid-19 industrial shut-down to be “largely recoverable over future years“. The company will be hoping he’s right. 

Investing in FTSE utilities

Utilities have a reputation for being unexciting but dependable. They are usually high yield with a long history of dividends payments. This is certainly true for National Grid. Moreover, they’re traditionally defensive — in a pandemic, people still need water and power.

However, earlier this year, the utilities sector wasn’t its usual safe haven. The long period of low interest rates means investors have been searching for yield in stocks with high dividends, such as utilities. Before the pandemic, the sector saw record-high valuations, not yet reversed. 

But with the FTSE 350 Utilities Index providing a 12% return over the past year, it’s easy to see the attraction. Especially when its non-specialised peer, the FTSE 350, returned a negative 14.7%. 

Perhaps utilities are worth a further look. But despite high yields, I’m not yet convinced.

The post National Grid share price: is now the time to buy FTSE utilities? appeared first on The Twelfth Magpie.

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Rachael FitzGerald-Finch 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.

So, is the £33bn cap the best dividend pick from the FTSE 100 right now? Since dividends ultimately depend on trading, let’s start by taking a closer look at today’s full-year numbers. 

Temporary hit

Are National Grid’s dividends safe?

For now, it would appear so.

Today, the company announced that it would return 32p per share to holders as a final dividend. This brings the total cash payout for FY20 to 48.57p per share (or a trailing yield of 5.1%).

Sure, a 2.6% rise on the amount of cash returned last year isn’t massive. However, I suspect existing holders won’t be too upset. After all, the company had previously said it was adopting a ‘wait and see’ approach to dividends in light of the Covid-19 outbreak. The fact that it’s now chosen to retain its policy is encouraging. 

Looking ahead, analysts are predicting a 49.9p per share return in the current (new) financial year. That gives a chunky yield of 5.3%.

The only thing worth highlighting here is that dividend cover — the extent to which payouts are covered by profits — isn’t massive at 1.2 times (2 times is ideal). Then again, one might argue that National Grid’s earnings are predictable enough to make this less of a concern. 

Best of the best?

Naturally, nothing can be guaranteed with investing. The coronavirus pandemic has simply been another reminder that dividends are never ‘safe’. Indeed, they’re often the first thing to be shelved when the going gets tough. 

Nevertheless, I think the company’s track record, combined with today’s news, makes National Grid a stock that can be held with a lot more confidence than others. It won’t give holders thrills and spills, but those are not what dividend hunters should be looking for.

Based on current projections for FY21, the stock trades at just under 16 times earnings. That’s expensive if we compare it to the five-year average of 13.5. Then again, the relative predictability of National Grid’s earnings in the current environment is arguably worth paying up for. 

All things considered, I maintain that National Grid is one of the best picks from the FTSE 100 for investors wanting to build a diversified income portfolio.

The post Is National Grid the best FTSE 100 dividend stock to buy today? appeared first on The Twelfth Magpie.

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• Are National Grid shares entering a new valuation era in the FTSE 100?

Paul Summers 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.

One example of a company that arguably stands a better chance than most, however, is FTSE 100 water and wastewater business Severn Trent (LSE: SVT).

A quick glance at today’s trading update from the company goes some way to explaining why.

“No material change“

In contrast to the vast majority of listed companies, Severn stated this morning that it had seen “no material change” in terms of business performance from its last trading update (28 January) to the end of March.

As a result, the £5.5bn cap expects full-year numbers to be in-line with the guidance it previously issued.

How many other firms can say that at the current time?!

In response to the Covid-19 outbreak, Severn said that it is doing all it can “to keep essential services flowing“, particularly for hospitals, schools, and care homes. Only customer visits deemed “essential” are going ahead. 

Aside from this, the Coventry-based business said that it was “actively promoting” its vulnerable customer schemes for those experiencing financial difficulties as a result of the pandemic.

As positive as all this is, Severn did say that government restrictions brought in to minimise the spread of the coronavirus were likely to have “a material impact” on its non-household customers and the recovery plan of its WaterPlus business (a joint venture with United Utilities). This may go some way to explaining why shares were down this morning while the index as whole was up. 

Nevertheless, I have no concerns over Severn’s finances. Less than 2.5% of its debt requires re-financing in the current year. It also has £1.1bn in cash and committed facilities to see it through. 

Another option

Severn isn’t the only utility in the FTSE 100, of course. Environmental infrastructure company Pennon (LSE: PNN) is another option for cautious investors. 

Yesterday’s full-year trading statement was similarly reassuring. The company stated that performance over the last year (which includes the coronavirus crisis) had been in line with management expectations.

Like Severn, Pennon said that only essential customer visits are taking place and it is prioritising support to those most vulnerable.

Like Severn, it also said that its finances were in good order to weather the coronavirus storm. In fact, the recent sale of waste business Viridor for £4.2bn, expected to complete this summer, will pretty much wipe all debt from its balance sheet.

Priced in?

Based on their share price performance over the last month (-10% and -3% respectively), both Severn and Pennon look likely to remain relative ‘safe havens’ in this unpredictable environment. 

Assuming no additional crises hit, both should also continue to be good options for dividend hunters. If analyst predictions prove correct, Severn yields 4.4% for the financial year ending today. At its current share price, Pennon offers 4.1% (with, I suspect, a potential special dividend in the works).

Naturally, the only issue with all this is that neither company is cheap to buy. Severn trades at 19 times forecast earnings for the 2020–21 financial year. Pennon trades on a P/E of almost 21. As such, it’s unlikely either will soar in price when the coronavirus is overcome.

The post Looking for dividends while markets crash? I think these FTSE 100 stocks could be great buys! appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Pennon Group. 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.

This is just one reason why, despite today’s encouraging half-year numbers, I’m continuing to avoid FTSE 100 income favourite SSE (LSE: SSE).

Return to profit

This morning, the blue-chip revealed a 15% rise in adjusted pre-tax profit to £263.4m over the six months to the end of September. On a reported basis, this came to just under £129m — a clear improvement on the near-£285m loss logged from the same period last year. 

In addition to returning to profit, SSE also reported expenditure had been in line with expectations — down 19% to £638.2m — with almost 70% of this related to investment in regulated electricity networks and renewable energy. On a related note, the £13bn-cap revealed poor weather over the autumn had allowed its wind farms to produce more electricity than expected, meaning “renewable output for the year to date is slightly ahead of plan.“

Elsewhere, the sale of its struggling energy services business to Ovo Energy for a cool £500m is expected to complete in early 2020, so long as it’s given the green light by regulators. 

Not for me

Some may scoff at the idea of Corbyn becoming PM. Personally, I think the last few years have shown that nothing can be ruled out. Even SSE acknowledged “some headwinds remain in the sector” as a result of the ongoing political uncertainty.

If Labour were to take power, then it seems reasonable to suggest companies such as SSE would quickly fall out of favour with investors. And if the new government were to act on its likely manifesto pledge, it’s unlikely shareholders would receive fair value for any of the companies being targeted. 

But there are other reasons why SSE just isn’t for me right now. Having enjoyed a fairly decent 2019 so far, the shares currently change hands for 15 times forecast earnings. That may be roughly on par with the FTSE 100 as a whole, but it’s on the more expensive side relative to industry peers.

I also remain uneasy with the state of SSE’s dividend. Today, the company said it would be reducing its interim payout to 24p per share, with the view to distributing a total of 80p per share over the full year. The latter may translate to a chunky yield of 6.2%, but it’s worth highlighting that profits are expected to barely cover this cash return, even after the aforementioned cut. 

This isn’t an absolute disaster from an income perspective — low cover is common for firms working in traditionally defensive sectors. Nevertheless, a lot does appear to be riding on the company’s earnings bouncing back to form and things beyond its control (e.g. the weather) remaining favourable. It’s also worth mentioning that SSE continues to be weighed down by a whacking amount of debt that’s been steadily climbing since 2015. 

In sum, SSE isn’t without its attractions, but I do feel there are better, less politically exposed options in the large-cap arena for those looking for reliable income. 

The post An uncertain election outcome means I’m avoiding this FTSE 100 dividend stock appeared first on The Twelfth Magpie.

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Paul Summers 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.

I have no better idea than you as to what’s going to happen next, be it a no-deal Brexit, some kind of revised deal, a second referendum and/or another general election. 

Nevertheless, I do think that the once-laughed-at scenario of a Labour government getting back into power with Jeremy Corbyn at the helm is certainly more plausible than it used to be.

In Labour’s sights

Very generally speaking, a new Labour government might not be great news for those who have wealth or are in the process of trying to build it. It’s particularly problematic for those who invest in the stock market.

Back in 2017, the party made a pledge to nationalise rail companies, mail delivery, energy supply networks, and water businesses. You can expect a similar pledge if the country were asked to return to the polls later this year or next.

This clearly has implications for a few FTSE 100 stocks, including United Utilities and Severn Trent — the two largest listed water companies with market capitalisations of £5.3bn and £4.5bn respectively.

They’re also big favourites among income investors and understandably so.

Both stocks are forecast to yield 5.2% in 2019 based on their current share prices. That’s clearly far superior to the derisory rates of interest on offer from a typical Cash ISA, although it’s worth pointing out that cash returns from both (and particularly United) haven’t exactly rocketed over the years.

However, after years of being regarded as a ‘safe’ place to park your cash and generate substantial, reliable dividend streams in the process, these firms could now be at risk of returning to public ownership.

That said, there will be many out there who believe that a Jeremy Corbyn-led government, while not impossible to envisage, is still very unlikely to happen.

As Sir John Curtice — Professor of Politics at Strathclyde University — commented yesterday, those already in power “often perform badly in European elections, as voters take the opportunity to express their disappointment with its performance without the risk that their vote might put the opposition into government“. The fact that Labour didn’t do all that much better is also telling.

Nevertheless, with senior Conservative MPs likely to be at each others’ throats until they elect a new leader in July, I can’t see the party’s popularity increasing anytime soon. 

Not worth the risk

Severn and United’s shares had identical valuations of 14 times forecast earnings before markets opened this morning. 

That looks expensive, especially as they face an uncertain future (although I acknowledge this could be applied to the vast majority of UK-focused businesses right now). 

Due to needing to keep their infrastructure running smoothly, both also have not-insignificant amounts of debt and are exposed to ongoing regulatory pressures.

Rather than attempt to predict the outcome of political events, I suggest those holding (and determined to continue doing so) should make checking they are sufficiently diversified elsewhere a priority.

It’s also worth bearing in mind that Shadow Chancellor John McDonnell has already stated that Labour would only pay a third of the water industry’s estimated market value to investors when it is nationalised.

Personally, I’ll continue to avoid both stocks for the foreseeable future.

The post Fear a Corbyn-led government? Here’s two ‘safe’ FTSE 100 dividend stocks I’ll be avoiding appeared first on The Twelfth Magpie.

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Paul Summers 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.

With dividends continuing to look fragile and the risk of political and economic uncertainties further impacting the stock’s value, I still believe that there are far easier ways of making money in the markets.

Delayed payment

Today’s downgrade was attributed to the ‘standstill period’ in the UK’s Capacity Market Auction (which gives contracts to firms such as SSE to provide back-up power in winter months and at times of exceptional demand) following an EU court ruling back in November.

As a result of this delay, SSE believes that it will be “unlikely to receive, or be able to recognise” the remaining £60m of income derived from this market until after its 2018/19 financial year. 

Although the company was quick to state that assurances from the UK government should make this issue “a matter of timing only“, it did say that adjusted earnings per share for the current financial year will now be roughly 6p less than previously thought and somewhere between 64p and 69p.

Elsewhere, SSE — one of the ‘Big 6’ energy providers in the UK — confirmed plans to use up to £200m of the proceeds from recent sales of stakes in its telecoms business and onshore wind farms to fund a share buyback and reduce net debt. The former is likely to begin before the end of March. 

According to CEO Alistair Phillips-Davies, the company is also “making progress” in looking at options for its Energy Services arm, including listing it as a separate entity or selling it. If neither of these is possible then this retail division would be retained as a separate business. A further update on this has been promised, again, by the end of March. 

Dividend doubts

SSE’s stock was among the worst performing shares in the FTSE 100 this morning (although it has since recovered to trade flat), beaten only by sector peer Centrica. This means that the company’s value has now fallen by 20% since last May. 

This might not concern long-term holders, of course, particularly those who hold the shares for its chunky dividends. Based on today’s share price (and the company’s intention to return 97.5p per share to holders in 2018/19), SSE yields 8.45%. That’s clearly preferable to what you’d get from even the best Cash ISA.

The only problem with this is that expected profits currently fail to cover this cash return. The longer this goes on, the more likely SSE will need to take a knife to the payout. With utility companies often used as a political football, customers continuing to migrate to smaller competitors, the possibility of a sustained period of warm weather hurting consumption and Brexit on the horizon, I think the probability of this happening can’t be easily dismissed. 

A far easier way of generating cash, in my opinion, would be to buy an exchange-traded fund that tracks the FTSE 100 index. Not only will this allow you to receive a decent dividend for far less risk, it’s also a seriously cheap way of gaining exposure to some of the biggest companies in the UK, many of whom have arguably far better long-term prospects than beleaguered SSE. 

The post Here’s why I’d dump dividend stock SSE and buy the FTSE 100 instead appeared first on The Twelfth Magpie.

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Paul Summers 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.

Why?

SSE blamed the slide in profits mainly on short-term factors, including the rise in wholesale gas prices. The weather, which was unusually dry, still and warm, not only reduced household use of gas and electricity but also lowered the amount of electricity generated by renewables. Meanwhile, the company only raised prices once this year, unlike many of its competitors.

The issues in the first half of the year seem to be only short-term in nature, but this week’s profit warning shows that volatility in the overall performance of the wholesale businesses may be here to stay. What’s more, some headwinds aren’t going to ease any time soon, with Ofgem’s proposed price cap set to add to retail pricing pressures and significantly lower adjusted operating profit for the retail business in the full year.

Dividends untouched

That said, the company remains committed to the dividend policy set out earlier this year, which underscores management’s confidence in the underlying performance of SSE’s businesses. The company expects to raise this year’s dividend by 3% to 97.5p, representing dividend growth which is broadly in line with expectations for RPI inflation. At its current share price, this would give its shares a prospective yield of nearly 9%.

And following the planned spin-off of its retail supply business to shareholders (and merger with Innogy’s Npower), SSE plans to re-base its dividend payout to 80p per share in 2019/20, before returning to dividend growth which will keep pace with RPI inflation in the three following years to March 2023.

Water companies

It’s not just the shares of energy suppliers that have been hit by pricing pressures. Water companies, such as United Utilities (LSE: UU), are set to face a tougher regulatory regime, with the regulator Ofwat signalling a much stricter price control regime for the upcoming regulatory review.

In its submission to the regulator, United Utilities has pledged to cut average bills by 10.5% in real terms between 2020 and 2025 — a reduction of roughly £45 per customer. It’s a significantly bigger cut to average bills than five years ago, and has sparked concerns about the safety of its dividends beyond 2020.

5.6% yield

The company, which has forecast dividend cover of around 80% next year, will likely find it difficult to afford its current progressive dividend policy, especially given its high debt pile. Net debt (including derivatives) was £6.87bn as at 31 March 2018, up from £6.58bn last year.

Shares in United Utilities have dipped by more than 20% over the past year, which has helped push up its dividend yield to 5.6%. This is significantly higher than its five-year average dividend yield of 4.2%, and could trend even higher with RPI-linked dividend growth already pledged for the next two years.

The post Tempted by the SSE share price? Here’s what you need to know appeared first on The Twelfth Magpie.

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Jack Tang has no position in any 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.

Infrastructure and utilities

Infrastructure and utilities have been among the most popular defensive asset classes in recent years, attracting billions from sovereign wealth funds, pension companies and other institutions. As they earn stable long-dated cash flows from essential physical assets, infrastructure and utility investments can be useful for investors who are looking to generate reliable income.

There are a number of domestically-focused infrastructure and utility stocks listed on the London Stock Exchange, but instead of just investing in the UK, why not consider diversifying your portfolio by investing in foreign infrastructure equities as well?

Emerging markets

One such fund which I’m keen on is the Utilico Emerging Markets Trust (LSE: UEM). It targets dividend-paying companies in the infrastructure and utility sectors in emerging markets.

Emerging markets are an attractive destination for infrastructure investments as many cash-strapped governments are fostering an attractive business environment for private capital and because returns have historically been higher than in developed markets.

Investing in such markets can be risky because of the higher volatility of equity prices compared to developed countries and added currency risks, but the fund is well-diversified by both sector and geography.

The Utilico fund seeks out companies and sectors displaying the characteristics of essential services or monopolies such as utilities, transportation infrastructure, communications or companies with a unique product or market position. Top holdings include International Container Terminal Services, Ocean Wilsons Holdings, Alupar Investimento, Transgaz and Yuexiu Transport Infrastructure.

At a share price of 218p, it currently trades at a prospective dividend yield of 3.2%.

Social housing

Another safe income-focused investment trust worth a closer look is Civitas Social Housing (LSE: CSH).

Its strategy is to invest in a broad mix of social housing, comprising traditional adapted homes, repurposed homes and purpose-built properties. This delivers more greater income predictability than most property portfolios, since it benefits from very long lease agreements signed only with housing associations and local authorities.

With a weighted average unexpired lease term of 24.3 years and the vast majority of rents benefitting from CPI-inflation indexation, investors can have a high degree of certainty that income earned by the investment company is set to grow steadily year-on-year.

Low correlation

Returns from such investments also have a low correlation against the general residential and commercial real estate sectors, or equity markets. This affords investors an opportunity to diversify more broadly across different markets to reduce their portfolio volatility at a time of heightened geopolitical tensions and global market uncertainty.

Still, the fund is not completely immune to broader economic patterns. Property valuations are ultimately determined by market forces, meaning they are dependent on macroeconomic conditions in the country. However, due to the long-dated nature of its lease agreements, investors should not have too much to worry about in the short- to medium term.

On the downside of the high predictability of its income, yields are fairly low — at its current price, shares in the social housing landlord yield just 3%.

The post Looking for safety? Consider these reliable dividend investment trusts appeared first on The Twelfth Magpie.

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Jack Tang has no position in any 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.