The other day I took a look at how well National Grid (LSE: NG) (NYSE: NGG.US) shares have done over the past year — they look set to easily beat the FTSE 100 by the end of December.
But just one year doesn’t really tell us much about the real value of an investment, so today I thought I’d work out how well National Grid has done over the past 10 years — has its combination of steady share price growth and rising dividends brought home the bacon?
The simple answer is yes.
From September 2004 to September 2014, National Grid shares have climbed by 104% (adjusting for a stock split), so a £10,000 investment back then would have more than doubled to £20,414 a decade later. And while many impatient investors spend their days looking for quick multi-baggers, a solid portfolio of shares like National Grid held for decades is the surest way to financial happiness.
Dividends too
But one of National Grid’s strengths is its dividends — it forms a cornerstone of many an income portfolio. So what difference would the cash have made?
With dividend yields averaging more than 5.5% per year over the past 10 years, the annual cash payments alone from National Grid would have wiped the floor with interest from a bank savings account — and you’d be well ahead even if the share price hadn’t budged, never mind more than doubling!
In fact, if you’d stashed your dividend cash under your mattress over the years, you’d be sleeping £7,708 higher in the air today, and your original £10,000 would now be worth £28,122. Eat your heart out, cash ISA!
Reinvest!
But, what would have happened if you’d maintained your sleeping elevation unchanged and instead bought more National Grid shares with your dividend cash each year? As the share price has steadily risen, you’d have been buying new shares at lower prices than today — and you’d have boosted your total by a further £6,044.
That original £10,000, with all dividends reinvested, would today be worth £34,166!
And you’d be heading into your next decade with around 3,700 National Grid shares to your name, where once you only had 2,300.
The lesson
The lesson I take from this is one of my favourites — that you don’t have to choose between income and growth shares. National Grid, a stock favoured for its steady dividends, has provided very strong capital growth with those dividends reinvested. (And conversely, a pure growth share like ARM Holdings could have provided a very handsome income had you sold a modest portion each year.)