National Grid plc (LSE: NG) (NYSE: NGG.US) shares have been doing nicely this year, gaining 16.5% over the past 12 months to 926p — and that’s on top of a dividend yield that has been steadily beating 5%. Over the same period, the FTSE 100 has lost 4%!
The gain has been boosted in the past couple of weeks, in anticipation of first-half results due on Friday 7 November — since 16 October, the shares are up 5.7%.
So what should we be expecting?
Solid start
At first-quarter time in July, chief executive Steve Holliday told us the company had started the year well, saying that “…we are maintaining our outlook for 2014/15, reflecting the expected delivery of another year of solid operating and financial performance and asset growth, consistent with sustaining our long term dividend policy“.
That, along with National Grid’s relatively predictable business model, suggests the analysts’ consensus is unlikely to be too far off the money.
There is a 17% fall in earnings per share (EPS) currently forecast for this year, but with capital expenditure going steadily at around £3.4bn per year (with regulated assets expected to grow by 5% this year), we should be seeing sustainable longer-term EPS growth.
Dividends growing
Dividends of 4.9% this year and 5% next are predicted, and that’s a little short of the yields achieved in recent years. But that’s down to the share price gains — in real terms, dividend rises have been keeping above inflation.
Speaking of dividends, a lot of National Grid shareholders elect to take theirs in the form of scrip. In fact, 28% took new shares from the company’s final dividend last year, in lieu of £290m of cash. The downside of that is it does dilute the future value of earnings per share, and to counteract that National Grid intends to repurchase shares in the market.
So, details of the interim dividend together with some quantification of the company’s repurchase plans will be very welcome.
But are National Grid shares worth buying at today’s levels?
Looking good value
Their P/E dropped as low as the 11-12 range during the stockmarket downturn, and I think that was almost criminally low — especially as dividends exceeded 6% in those years. Against that, the current forward P/E of 16.6 doesn’t look like so much of a steal, but I reckon it still represents fair value for a company offering such a reliable and above-average dividend.