Today, I am looking at National Grid (LSE: NG) (NYSE: NGG.US), and deciding whether to power up my investment portfolio with the electricity stock.
Heavy investment to deliver heady expansion
National Grid announced in late July’s interims that it intends to dedicate between £3.6bn and £3.9bn during the current year in a bid to significantly expand its asset base and underpin future growth. The firm has said that this is in line with its intention of “growing regulated assets by around 6% per annum over the next few years”.
The electricity network giant is planning to plough the majority of this capital into boosting its assets in the UK, including rewiring the capital through the London Power Tunnels project. But it is also looking to expand its presence in the United States, and has earmarked between £1.3bn and £1.4bn for existing infrastructure upgrades, service improvements and other investments. Planned work on both sides of the Pond should provide ample growth drivers amid rising power demand.
Exciting earnings possibilities at attractive prices
This impressive investment programme is widely anticipated to charge earnings over the longer term. Indeed, City forecasters expect the firm to bounce back from a 5% dip in earnings per share in the year ending March 2014, to 53p, with a 5% recovery in the following 12 months to 56p.
The electricity play was recently changing hands on a P/E ratio of 13.9 and 13.3 for 2014 and 2015 correspondingly, which I believe represents decent value for money. By comparison, the wider gas, water and multiutilities sector trades off a prospective P/E of 16.6 and the FTSE 100 reading of 15.8.
An electric selection for meaty dividend growth
National Grid — like all utilities plays — is a popular pick for those seeking access to juicy dividends. And the company affirmed in July its intention to continue “growing the dividend at least in line with RPI inflation for the foreseeable future”.
Indeed, City analysts expect the firm to increase last year’s 40.85p payout to 42.5p in 2014 and 43.83p in 2015, resulting in prospective yields of 5.8% and 6% for these years. This easily surpasses the 4.9% forward average for its utilities industry counterparts.
In my opinion, the potential for chunky dividend income, underpinned by the firm’s steady investment policy and thus attractive earnings prospects, makes it a great stock selection. But whether or not you already hold shares in National Grid, you should check out this brand new and exclusive report which singles out even more FTSE 100 winners to really jump start your investment income.
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> Royston does not own shares in National Grid.