Is it time to buy into the National Grid share price?

The National Grid share price is down, and I reckon that makes it a good time to buy. Here’s my take on the long-term NG dividend outlook.

| 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.

Utilities companies have been rocked again, as Ofgem has been squeezing them harder to get consumer prices down. Both SSE and National Grid (LSE: NG), issued statements Thursday, in response to Ofgem’s latest draft determination, and both saw their shares dip on the day. The SSE share price dropped 4%, and the National Grid share price lost 5.5%.

Over the past five years, the NG share price picture has been unimpressive. The period has not been good to UK shareholders, with the FTSE 100 down 9%. Against that, the 6.5% fall in the National Grid share price doesn’t seem so bad, though SSE’s 17.5% fall looks pretty dreadful.

But today, I want to move away from the share price itself and look to the potential dividend rewards instead, as I think that tells a different story. If you’re going to keep your shares forever and use the income stream to help fund your retirement, should you really care where the  National Grid share price itself goes? So how have dividends rewarded National Grid shareholders over the past five years?

Should you invest £1,000 in Cranswick 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 Cranswick made the list?

See the 6 stocks

Forget the National Grid share price

Let’s suppose you bought some shares in March 2015 at the start of the 2015–16 financial year, at a price of 945p. Over the next five years, you’d have pocketed dividends per share based on your original purchase price of 43.34p, 44.37p, 45.93p, 47.34p, and 48.57p.

That’s a steady year-on-year rise, keeping a little ahead of inflation. Over the period, the National Grid share price was erratic, reaching above 1,250p in July 2017, and dipping as low as 735p in February 2018. But based on your original purchase price, those dividends would have provided yields of 4.6%, 4.7%, 4.9%, 5.0%, and 5.1%.

That’s all fine if you’d retired at the start of the period and took the dividend cash each year. But what if you’re still an active investor and you reinvested the dividends in new shares? Well, you would have been able to buy fewer shares than average with your dividends in 2016 and 2017 when the price was high. But with the shares cheaper in the following three years you’d have been able to bag more.

Here’s what dividends would have done

In total, your initial pot of £1,000 in March 2015 would have grown to £1,325 by today. I reckon that’s a pretty good return, even though the National Grid share price has been in a recent slump. To my mind, it really does show the value that compounding can have on reinvested dividend income.

So would I buy National Grid shares today? There are plenty of arguments against it. One is that you might expect a company in a regulated market to fare poorly compared to a free market one. But in the light of popularist political pressure on our utilities firms over the five years, the NG result looks especially good to me.

Then there are issues over weak dividend cover and big debts. With most companies, those would both be red lights for me. But National Grid has among the best forward visibility there is of any company, with captive markets, predictable revenues, and predictable need for capital expenditure.

I can see the National Grid share price possibly remaining unimpressive over the next five years. But those compound dividend returns make it a buy for me.

But there may be an even bigger investment opportunity that’s caught my eye:

Investing in AI: 3 Stocks with Huge Potential!

🤖 Are you fascinated by the potential of AI? 🤖

Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.

If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…

Then you won't want to miss this special report inside Motley Fool Share Advisor – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And today, we're giving you exclusive access to ONE of these top AI stock picks, absolutely free!

Get your free AI stock pick

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.

Alan Oscroft 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.

More on Investing Articles

Investing Articles

These 5 stocks could earn £1,600 of annual passive income in a £20,000 ISA

Harvey Jones shows how to generate a high and rising passive income by buying a balanced mix of high-yielding FTSE…

Read more »

Young woman holding up three fingers
Investing Articles

3 things I like about Greggs shares

Greggs shares have tumbled by more than a third over the past year. But this writer has no plan to…

Read more »

artificial intelligence investing algorithms
Investing Articles

Nvidia stock: beware the bear market rally

Andrew Mackie argues that investors should tread carefully before investing in Nvidia stock, as the worst of the sell-off could…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Up 73% in one year, is this the best value stock in the FTSE 100?

A brilliant run of form suggests this FTSE 100 giant should no longer make the cut as a value stock.…

Read more »

Investing Articles

The best could yet be to come for UK shares! I’m buying these ones

Amid ongoing stock market turbulence, this writer's been adding selected UK shares to his portfolio. Here's why and what he…

Read more »

Top Stocks

4 UK stocks trading well below book value to consider buying

Sometimes, it pays to be contrarian: who says the UK market has priced a stock precisely right, anyway?

Read more »

Investing Articles

The S&P 500’s 12% off its highs. Is now a good time to buy US shares for an ISA?

Right now, a lot of British investors are wondering whether it’s a good time to buy US shares. Here, Edward…

Read more »

Investing Articles

2 stocks that could help investors earn £2,516 of passive income per year from a £20k ISA

Our writer selects two high-yield UK dividend shares for investors to consider that could turbocharge a passive income portfolio.

Read more »