At a time when the big gas and electricity suppliers are feeling the pinch, National Grid (LSE: NG) (NYSE: NGG) shareholders will be smiling to see last week end on a 52-week high of 911p.
It’s backed off a little to around 910p today, but that’s still a rise of 23% over 12 months compared to the 4% managed by a struggling FTSE 100. And over five years, National Grid is up 75% while the index has managed only half that.
And that’s from a stock better known as a solid income provider. So what is it about National Grid that makes it such a success, and is it still worth buying now?
Network sewn up
National Grid owns the electricity transmission network in England and Wales, and operates the Scottish network (which is owned by Scottish Power and Scottish and Southern Energy). It also owns and operators a major proportion of the UK’s gas transmission network, together with high voltage links to France and the Netherlands.
So it’s very much a “picks and shovels” operator in the UK (named after the suppliers who made money in gold rushes whoever found the actual yellow stuff). And it tends not to be the target of customers’ and politicians’ ire as the latest nasty baddy overcharging people on their bills.
In addition, National Grid has significant distribution facilities in the northeastern United States.
The company does still operate in a regulated business, and with pressure on prices there’s a 17% fall in earnings per share (EPS) forecast for the year ending March 2015. But even with that and the soaring share price, we’re still looking at a forward P/E of under 17. That’s ahead of the long-term FTSE 100 average of 14, but for a year with an expected short-term dip in earnings, it really doesn’t strike me as too stretching.
Dividends
And that’s even without examining National Grid’s dividend record.
The annual cash payout has been rising steadily, and provided a yield of 5.1% last year — one of the best and safest on the market. There’s a 3% rise in 2015’s dividend currently forecast, followed by the same again for 2016. And even with the past year’s share price climb, that would still provide yields of 4.7% and 4.9% respectively.
The big question is whether National Grid will keep those payments flowing.
In March the company revealed a policy of keeping its dividends in line with the increase in average retail price inflation (RPI). And that was confirmed when year-end results were released in May amid talk of “commitment to sustainable dividend growth”.
A safe investment
On the whole, then, I see National Grid as one of our most reliable dividend payers, and there should be ample cash over the next couple of years to keep shareholders happy until earnings start growing again.