Why National Grid plc Should Beat The FTSE 100 This Year

National Grid plc (LON: NG) is powering to a great 2014.

| 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.

ng.2While the FTSE 100 as a whole has had a lacklustre 2014 with a fall of 5.7% to date, National Grid (LSE: NG) (NYSE: NGG.US) has bucked the trend to deliver a 10.7% gain since the start of the year to 869p.

When we add dividends that are yielding around 5% while the FTSE averages closer to 3%, that really is a market-beating performance.

Looking over the longer term, too, National Grid has been outperforming strongly. Over five years the FTSE has put on a modest 23%, while National Grid has trounced that with a 70% gain.

Valuation rising

That rise has come at a bit of a price, mind, and National Grid’s price to earnings (P/E) ratio has risen from under 11 back in 2010 to a forecast value of 16 for the year ending March 2015. That’s above the FTSE’s long-term average of 14, but with those superior dividends it’s really not pushing it.

Will this performance continue?

With individual gas and electricity suppliers under the political cosh right now, and with Labour in particular promising price freezes should it win the next election, it’s easy to see the greater attraction of a ‘picks and shovels’ investment like National Grid. With its near-monopoly on the UK’s energy distribution networks, and its significant networks in the northeastern states of the USA, it’s a very attractive investment.

“One of our best years

In May, chief executive Steve Holliday said the company had enjoyed “one of our best years ever in terms of network reliability and resilience“, having invested more than £4.3bn in essential infrastructure. He also told us of “robust cash flow performance, good growth in our asset base and lower gearing“, saying that this all helped “support our commitment to sustainable dividend growth“.

And at the end of the first quarter of the current year, reported in July, the firm maintained its outlook for the year and said it expects “another year of solid operating and financial performance and asset growth“.

Strong forecasts

Forecasts do suggest a fall in earnings per share (EPS) for the year, but there’s an improvement penciled in for March 2016. And critically, analysts are predicting a 3% rise in the dividend for a yield of 5%, followed by the same again to yield 5.1% a year later.

With dividends that far ahead of the FTSE’s average and being hiked each year by more than inflation, I still see National Grid as good value — and I wouldn’t be surprised to see the shares continuing to beat the FTSE.

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 shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

5 steps to start buying shares with under £500

Learn how this writer would start buying shares with a few hundred pounds in a handful of steps, if he…

Read more »

Young happy white woman loading groceries into the back of her car
Investing Articles

The FTSE 100 offers some great bargains. Is this one?

Our writer digs into one FTSE 100 share that has had a rough 2024 to date, ahead of its interim…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

£9,000 of savings? Here’s my 3-step approach to aim for £1,794 in passive income

Christopher Ruane walks through the practical steps he would take to try and turn £9,000 into a sizeable passive income…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

I’d buy 29,412 shares of this UK dividend stock for £150 a month in passive income

Insiders have been buying this dividend stock, which offers an 8.5% yield. Roland Head explains why he’d choose the shares…

Read more »

Red briefcase with the words Budget HM Treasury embossed in gold
Investing Articles

Could the new UK budget spell growth for these 6 FTSE stocks? I think so!

Mark David Hartley considers six UK stocks that could enjoy growth off the back of new measures announced in the…

Read more »

Investing Articles

With a 6.6% yield, is now the right time to add this income stock to my ISA?

Our writer’s looking to boost his Stocks and Shares ISA. With this in mind, he’s debating whether to buy a…

Read more »

Dividend Shares

This blue-chip FTSE stock just fell 12.5% in a day. Is it time to consider buying?

Smith & Nephew is a well-known, blue-chip FTSE stock with a decent dividend yield. And its share price just dropped…

Read more »

Investing Articles

At 72p, the Vodafone share price looks to be at least 33% undervalued to me

Our writer looks at a number of valuation measures to determine whether the Vodafone share price reflects the fair value…

Read more »