What Dividend Hunters Need To Know About National Grid plc

Royston Wild looks at whether National Grid plc (LON: NG) is an attractive income stock.

| 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.

Today I am looking at whether National Grid (LSE: NG) (NYSE: NGG.US) is an appealing pick for those seeking chunky dividend income.

Dividends expected to continue rising

National Grid — like all of the UK’s other listed utilities providers — has long been a haven for those seeking access to reliable, and chunky, dividend growth every year. Even though a rights issue in 2011 pushed the dividend lower than year, the electricity giant has still seen total payouts rise at an annual growth rate of 2.2% since 2009, while yields have remained comfortably north of thenational grid market average.

The company has managed to keep payouts rolling even in spite of earnings pressure, so investors will be particularly buoyed by news that earnings continue to rise strongly. Indeed, National Grid saw earnings per share advance 15% in the 12 months concluding March 2014, a solid performance which helped the firm lift the full-year payout 2.9% to 42.03p per share.

Should you invest £1,000 in National Grid right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if National Grid made the list?

See the 6 stocks

And investors can look forward to further dividend expansion in the medium term, based on current forecasts. The business is expected to raise the payment 3.1% in fiscal 2015 to 43.5p, and a further 3.2% increase is predicted for the following year to 44.9p.

These projections create dividend yields of 5.1% and 5.2% respectively, far ahead of the 3.2% FTSE 100 prospective average and surpassing a corresponding readout of 4.3% for the entire gas, water and multiutilities sector.

Improving cash flows boost payout potential

Investors should be aware that National Grid boasts dividend cover well below the generally-regarded safety region of 2 times prospective earnings or above during this period, even though earnings are predicted to rise 6% and 4% in 2015 and 2016 respectively — the electricity play boasts figures of just 1.3 times through to the end of next year.

Still, I believe that fears over future payouts should be assuaged by the firm’s excellent cash flows, and the firm saw operating cash flow improve 5% during March-September 2013 to just under £2bn. And National Grid’s cash position is likely to improve as RIIO price controls in the UK, running from 2015-2023, boost efficiency and reduce excessive capital expenditure.

In my opinion National Grid is an excellent choice for those seeking solid and dependable income growth, and with investment set to continue rolling at home and abroad, I believe that dividends should continue to expand solidly in line with earnings.

Should you buy National Grid now?

Don’t make any big decisions yet.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.

And he believes they could bring spectacular returns over the next decade.

Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows...

When such enormous changes hit a big industry, informed investors can potentially get rich.

So, with his new report, Mark’s aiming to put more investors in this enviable position.

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

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

Aerial view of York downtown at night
Investing Articles

Is it worth me buying National Grid shares for around £9 after a 14% drop?

National Grid shares have fallen significantly from their post-rights issue high seen in September, which indicates to me a possible…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

As the Diageo share price falls another 6% in 2025, what should investors do?

The rise of GLP-1 drugs is sending the Diageo share price lower. But Stephen Wright thinks investors should try to…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Here’s what £10,000 invested in Greggs shares on 2 January is worth now…

Greggs' shares have been among the most popular on the FTSE 250 in recent years, but 2025 brought bad news…

Read more »

Investing Articles

Could former penny share Filtronic be a millionaire-maker at 101p?

Filtronic (LON:FTC) stock has rocketed 359% in a year and burst past the 100p mark! Does the ex-penny share interest…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

Just opened an ISA? Here’s a 9% yield dividend share to consider!

Looking to make a large and growing passive income? Here's a top FTSE 100 dividend share for Stocks and Shares…

Read more »

Investing Articles

How much would a Stocks & Shares ISA investor need for a £500 weekly passive income?

Investing in a selection of global shares, trusts, and ETFs can help Stocks and Shares ISA investors build a large…

Read more »

Illustration of flames over a black background
Investing Articles

Just released: January’s higher-risk, high-reward stock recommendation [PREMIUM PICKS]

Fire ideas will tend to be more adventurous and are designed for investors who can stomach a bit more volatility.

Read more »

Investing Articles

Here’s why I’m waiting for a lower Rolls-Royce share price to buy

After a storming couple of years for the Rolls-Royce share price, this writer explains why he's holding off on making…

Read more »