National Grid (LSE: NG.) shares have had a good run recently. Yet despite their strength this year, they still offer an attractive dividend yield of around 4.4%.
Are they worth buying today in light of this above-average yield? Let’s discuss.
A sleep-well-at-night stock?
In the current environment, there’s a lot to like about National Grid shares, in my view.
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One of the biggest attractions is the company’s ‘defensive’ attributes. Right now, there’s an awful lot of economic uncertainty. Many businesses are seeing their revenues and profits deteriorate for one reason or another.
In this kind of environment, National Grid shares could offer a degree of portfolio protection. People are always going to need electricity and gas. And the company has a monopolistic position in many of its markets. So its revenues and earnings are unlikely to suddenly fall off a cliff.
Speaking of earnings, National Grid is aiming for earnings per share growth of 6-8% a year over the next few years. This is encouraging.
Reliable dividend payer
Another attraction here is the company’s dividend track record. National Grid is a reliable dividend payer and has consistency when it comes to increasing its payout. This is illustrated in the table below, which shows the last five financial years’ payouts.
| Year | FY2018 | FY2019 | FY2020 | FY2021 | FY2022 | FY2023E |
| Dividend per share | 45.7p | 47.3p | 48.6p | 49.2p | 51.0p | 55.2p |
The table shows that the dividend has consistently risen over the last half-decade. Even during Covid-19, when a lot of FTSE 100 companies slashed their dividends, National Grid raised its payout.
It’s worth noting that the dividend forecast for FY2023 (which ended 31 March) is a fair bit higher than the payout for FY2022. At today’s share price, it equates to a yield of around 4.8%.
Good value?
As for the stock’s valuation, I think it’s reasonable. Currently, the forward-looking price-to-earnings (P/E) ratio here is about 15.6.
That’s a little higher than the market average, but not a lot higher.
The elephant in the room
One major risk here, however, is debt. At 30 September, net debt stood at £46.5bn. That’s quite a large amount of leverage and it can’t be ignored now that interest rates are much higher than they were.
In its half-year results, National Grid said net finance costs for FY2023 are expected to be around £350m higher than they were in FY2022 (£1,081m). That’s a significant increase.
This is something to keep an eye on. Further increases in finance costs could impact earnings and dividend growth.
My view
On balance though, I see National Grid shares as a solid investment today. It’s not the kind of stock that’s going to deliver spectacular returns. But I think it could deliver healthy long-term returns from here.
