National Grid (LSE: NG) is a good solid company, my kind of share. One of the main reasons for this is it has a captive market.
National Grid is the only distributor of gas and electricity in the UK. Also, it supplies over 9,000 miles of electricity to USA states Massachusetts, New Hampshire, New York, Rhode Island and Vermont. That’s 3.3 million electricity customers and 3.4 million gas customers. I didn’t even know this when I first invested in the share, but it is a useful piece of diversification to have. It’s sticking to quite a prosperous English-speaking area.
National Grid has a decent dividend yield of 4.83% and is trading on a fairly good P/E of 12.4. What I particularly like about National Grid is its consistent profits and rising dividend.
|
 |
2014 |
2013 |
2012 |
2011 |
2010 |
|
Profit Before Tax: |
2,748.00 |
2,711.00 |
2,559.00 |
2,624.00 |
2,193.00 |
|
Total Dividend Paid (pence per share) |
42.03 |
40.85 |
39.28 |
36.37
|
38.49
|
Both the profit and total dividend paid are key factors to check before you buy a share — investment experts recommend you check this for a number of years.
As you can see, the dividend has been rising above the rate of inflation at around 8%. However, in future the dividend increases may only track retail price inflation, which is 2.9% this year.
National Grid does have to take on quite a lot of debt to maintain its infrastructure, although this seems to be at a manageable level. National Grid has total borrowings of £25.9 billion and net debt of £21.1 billion at the end of March 2014. A high percentage of this debt is in US dollars and the strength of the pound has had the effect of reducing net debt by approximately £1.2 billion pounds.
I bought National Grid on 15th January 2013 at 689.95p and on 9th October 2013 at 743.69p. (The first time I bought it was slightly before The Motley Fool recommended it in a special free report, I believe, ‘great minds’ and all that!). I’m pleased with the gains since then.
At 871p now, what should you do? I would definitely say put National Grid on a watch list, especially if you’re into high yield shares. I have no plans to add to it at the moment, but if you don’t have any then you may want to consider it. It’s easy to see National Grid has had a steep rise over the last year. Personally, I would keep it on a watch list and look to buy in at around 850p, provided nothing significantly bad happens to the business. You do have to keep an eye on weather events in the USA, though, with Hurricane Irene and Super Sandy causing damage in the past…