5.4 Reasons That May Make National Grid plc A Buy

Royston Wild reveals why shares in National Grid plc (LON: NG) look set to heat up.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

gas

Today I’m explaining why I believe the prospect of steady dividend growth is set to drive National Grid (LSE: NG) (NYSE: NGG.US) skywards.

Plug in for decent dividends

Utilities plays are traditionally an oasis for those seeking chunky shareholder payouts, and the defensive nature of these firms more often than not makes them a winner for dependable annual dividend growth. And with National Grid expected to shell out ultra-generous dividends well into the future — including a sector-beating yield of 5.4% for the year concluding March 2014 — I believe that the electricity specialist is a fantastic pick for savvy income investors.

National Grid announced last month that pre-tax profit moved 7% lower during the March-September period, to £979m, due to the additional cost of pre-financing its asset growth programme.

The business said that it had made a strong start to the new eight-year RIIO price control regime in the UK, which aims to reward companies who carry out their investment programmes and day-to-day operations in a cost-efficient manner. National Grid spent 8% less during the first six months of fiscal 2014, at £1.69bn, “reflecting changes to replacement workload requirements and efficiencies against regulatory cost allowances.”

Still, National Grid noted that it expects to commit around £3.5bn this year to capital expenditure. Although this is down from between £3.6bn and £3.9bn estimated previously, its regulated asset base is still set to grow by around 6% this year. And the firm expects to expand assets by this percentage over the medium-to-long term, a promising precursor for future earnings growth.

National Grid broadly boasts a proud record of steady dividend increases dating back many years, although the 2011 full-year payout was forced lower owing to an earlier rights issue. The company has since got its progressive policy back on track, and City forecasters expect National Grid to lift last year’s 40.85p per share dividend to 42.14p in 2014. This is then anticipated to rise to 43.35p per share in the year ending March 2015.

Based on these projections, National Grid currently carries dividend yields of 5.4% and 5.6% respectively. Not only does this knock out a forward average of 3.2% for the FTSE 100, but also leaves a corresponding reading of 4.6% for the broader gas, water and multiutilities sector trailing in its wake. And I believe that a backdrop of steadily-improving earnings should underpin growth further out.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Royston does not own shares in National Grid.

More on Investing Articles

Investing Articles

Shock news: the FTSE 100 is beating the S&P 500 and Nasdaq over one year!

Quite suddenly, the UK's FTSE 100 index has surged past the S&P 500 and Nasdaq Composite, beating both over one…

Read more »

Investing Articles

I asked ChatGPT to name 5 UK stocks for a perfectly balanced ISA – here’s what it picked! 

Harvey Jones is looking for UK stocks to add to this year's ISA, and decided to call in some assistance…

Read more »

Dividend Shares

With a 13.66% yield, is the FTSE 250’s largest dividend worth considering?

Jon Smith eyes up the highest yielding stock in the FTSE 250 at the moment, and balances out the risks…

Read more »

Investing Articles

Down 22%! Is this my chance to buy Nvidia stock?

Ben McPoland weighs up the case for and the case against reintroducing AI chip king Nvidia into his Stocks and…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Down 34%, are Greggs shares now a bargain?

Christopher Ruane looks at some pros and cons of buying Greggs' shares after the baker's valuation has taken a tumble…

Read more »

Electric cars charging at a charging station
Investing Articles

3 reasons why Tesla stock has crashed 39% in 2025

Our writer explores a trio of issues that have combined to negatively impact the Tesla (NASDAQ:TSLA) stock price so far…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Stocks to watch ahead of the Formula 1 season opener

Formula 1 has become big business since its US takeover. Here, Dr James Fox details a handful of stocks to…

Read more »

Investing Articles

After plunging 20% in a month, is the IAG share price back in deep value territory?

The IAG share price was smashing the FTSE 100 but suddenly it's plunging again. Harvey Jones looks at whether this…

Read more »