While it’s true that monopolies can be bad for consumers, they normally make very good investments. And when searching for passive income streams, I find looking at companies with the lion’s share of a particular market tends to be a smart move.
Because these firms have little to no competition, the profits they earn (and the dividends they pay) tend to be reliable. I think there’s one FTSE 100 stock that falls into this category.
A vital business
National Grid (LSE: NG) operates the UK’s gas and electricity transmission networks, so plays a vital role in connecting millions of people to the energy they use. As the owner of this essential infrastructure, it’s essentially a regulated monopoly.
This regulation means that the dividend is unlikely to grow massively year on year, but is very predictable.
National Grid dividend record (as of October 2022)
| Year ending 31 March | Total dividend per share |
| 2023 | 54.0p (forecast) |
| 2022 | 50.97p |
| 2021 | 49.16p |
| 2020 | 48.57p |
| 2019 | 47.34p |
| 2018 | 45.93p |
Passive income
Analysts expect National Grid to pay out 54p per share for this financial year (ending 31 March 2023). At today’s share price of 965p, that means a prospective dividend yield of about 5.6%.
To generate £1,000 in annual dividends, I’d need to buy 1,850 shares. These would cost me around £17,850. So, if I had this amount of money, I could buy National Grid shares today and start pocketing a grand a year in passive income.
I don’t have a spare £17,850 lying around. But that doesn’t mean I can’t start small and work my way up to such an amount over time.
Regular investments
For example, if I instead invested £67 a week in National Grid shares at an average price of 965p, I’d reach my £1,000 annual income target within five years. This is assuming the 54p per share payout stays the same, but in reality that will likely trend upwards over time, although that’s not guaranteed.
Reinvesting my dividends would also speed up the process even further, due to the magic of compounding. This would get me to my £1,000 target sooner.
Of course, this is for the purposes of illustration only. Prices (and therefore yields) are constantly fluctuating. But National Grid is a mature, stable business, so I think the stock is a strong candidate to drip-feed cash into to get the ball rolling.
Share price risk
The UK could face rolling blackouts this winter if it cannot secure enough gas due to the ongoing war in Ukraine. National Grid’s CEO John Pettigrew believes British households will find the upcoming winter “financially very, very hard“.
Were rolling blackouts to occur, there’s an obvious risk that this could cause huge volatility in National Grid shares.
However, I remind myself that the dividend hasn’t actually been cut in 26 years. This record seems even more impressive to me when I consider this period included the Financial Crisis of 2007-2008, Brexit, and the Covid-19 pandemic.
So I expect National Grid to navigate its way through this winter and come out the other side still paying dividends. As such, I’m looking to add the shares to the income side of my portfolio at the next opportune moment.
