Older investors often want to invest in shares that will provide ‘safe’ returns, if such a thing exists. Most people would think of Telstra Corporation Ltd (ASX: TLS), Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) when I say ‘safe’. However, the last 10 years has shown that the above five blue chips aren’t as safe as you’d hope. Indeed, I don’t think there are truly any ‘safe’ shares out there. Even if the revenue and earnings…
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Older investors often want to invest in shares that will provide ‘safe’ returns, if such a thing exists.
Most people would think of Telstra Corporation Ltd (ASX: TLS), Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) when I say ‘safe’.
However, the last 10 years has shown that the above five blue chips aren’t as safe as you’d hope. Indeed, I don’t think there are truly any ‘safe’ shares out there. Even if the revenue and earnings go up the share price can still easily move by double digits each year.
Utility businesses are usually considered as lower-risk because they have a good source of regular cash flow and high customer retention rates.
Here are two examples to consider:
TPG Telecom Ltd (ASX: TPM)
TPG is one of Australia’s largest telecommunications companies and has a regular source of revenue thanks to the monthly bills paid by Australian households and businesses. Data demand is consistently growing so it’s unlikely that TPG’s revenue will drop in the coming years. The NBN is constricting margins but it appears TPG’s current share price has taken this into consideration.
The reason why I think TPG could be a decent opportunity is that it’s building mobile networks in Australia and Singapore. It’s quite possible that 5G will become the preferred method of getting internet by a lot of households over the next few years, so this could be a smart move by TPG.
It’s currently trading at 26x FY19’s estimated earnings.
AGL Energy Ltd (ASX: AGL)
AGL is one of Australia’s largest energy retailers and energy producers. As a country we are doing a good job at reducing energy consumption through more energy efficient devices like LED bulbs, but there are more and more things that require electricity. Once electric vehicles are widespread this will be another big addition to energy demand.
I believe that AGL could steadily grow earnings over the medium term because even though household renewable energy production is growing through solar power, it isn’t enough to make up all the increased demand, particularly from large apartment buildings.
AGL is currently trading at 14x FY18’s estimated earnings.
Utility companies could be a decent idea to add to a portfolio. Of the above two I think AGL is likely a better option, particularly for its partially franked dividend yield of 4.79%.
If you want growth instead of utilities then I reckon these top stocks are the way to go.
For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..
But knowing which blue chips to buy, and when, can be fraught with danger.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited and TPG Telecom Limited. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.