In this series so far I’ve picked shares that are clearly ahead of the FTSE, but today I’m going for one that is pretty much neck-and-neck with the top London index.
That choice is National Grid (LSE: NG) (NYSE:NGG.US).
The National Grid share price has risen by 74p to 777p since the start of 2013, taking it up 10.5% — and that’s clearly behind the 13.2% gain from the FTSE 100 over the same period.
Solid dividends
But when we take dividends into account, things are less clear. National Grid is on a forward dividend yield of 5.5% based on current year-end forecasts, with the FTSE offering an average of 3.2%. That adds up, then, to a likely 16% reward from National Grid but a 16.4% return from the index as a whole.
There’s still time yet, and I think sentiment is turning back in favour of the energy market. But even if the FTSE should shade out the electricity distributor before the end of December, I think there are other reasons to label National Grid a winner.
Low risk
Over the longer term, National Grid must be among the the lowest risk shares in the top index — it distributes one of the most essential products we have and without which nothing else could function, and it enjoys a monopoly in doing so. Over the past 15 years, National Grid has not only comfortably beaten the FTSE once dividends are included, but it has done it with a bit less volatility.
Regulation? Pah!
The biggest downside, of course, is being in a regulated business — and the aggressive stance taken by Labour leader Ed Miliband against the energy companies in his recent electioneering attempt knocked the sector back a bit.
But that hot air seems to be cooling, and National Grid should be harmed the least should any price-capping actually come to pass — and its shares have put on about 5% since the start of October.
Solid results
How has the firm been performing as a business?
We had six-month figures a week ago, and chief executive Steve Holliday told us that things are “in line with our expectations overall both operationally and financially“.
Operating profit was 1% down at £1,572m with pre-tax profit dropping 7% to £979m, but the firm has experienced some exceptional costs in the period. And though underlying earnings per share fell by a modest 1% to 20.4p, the expected interim dividend of 14.49p per share was confirmed.
Investing in the future
The company also told us that 2013-14 capital expenditure should be about £3.5bn, and is “expected to drive regulated asset growth of around 6%“.
All in all, I reckon National Grid is sitting on a gold mine, with the obvious difference that electricity is actually a lot more useful than the pointless shiny stuff.
That makes National Grid an easy winner for me — and I’m still hoping it will nudge ahead of the FTSE by the time the festive season ends.