Investors in National Grid (LSE: NG) know what they want: dividends. The utility group has not cut its dividend since 1996 and has increased the payout in most years since. This has made National Grid shares a very popular income investment.
With energy markets in turmoil, I’m wondering if National Grid can maintain this impressive record. To find out more, I’ve been taking a look at the latest dividend forecasts for this stock.
National Grid dividend: latest forecasts
National Grid operates the UK’s gas and electricity transmission networks, so it doesn’t have the same direct exposure to energy prices as utility peers SSE and Centrica.
Although National Grid’s US utility business has more exposure to commodity prices, market conditions are a little different on the other side of the Atlantic.
On balance, I think National Grid should be able to maintain stable earnings and modest dividend growth over the next few years.
City analysts seem to share this view. In the table below, I’ve listed the latest dividend forecasts I can find for National Grid, together with the expected dividend yield, based on a share price of 1,035p:
| Year ending 31 March | Forecast dividend | Dividend yield |
| 2023 | 54.0 | 5.2% |
| 2024 | 56.2 | 5.4% |
| 2025 | 57.5 | 5.6% |
Forecasts are always subject to change. But I think it’s worth noting that these estimates show National Grid’s dividend growth slowing. The dividend is expected to rise by 6% this year, but only 2% in 2024/25.
Despite this, National Grid’s 5%+ dividend yield is well above the FTSE 100 average of 3.6%. For investors seeking a higher income today, I think National Grid could be a good option.
What are the risks?
No dividend is risk-free. Payouts can always be cut, or even cancelled altogether. Although I think a major cut is unlikely at National Grid, I can see some possible concerns.
One worry for me is that National Grid has not yet recognised the level of investment that will be needed to support the transition to net zero. For example, recent press reports have suggested that new renewable projects such as wind farms may face a 10-year wait to get connected to the grid.
If the switch to electric cars continues to gain momentum, I’d also imagine that electricity distribution networks could also come under strain.
My guess is that to achieve net zero, a lot more investment will be needed than anyone has recognised yet.
National Grid shares: what I’d do
Although the future is uncertain, I’m encouraged by steps National Grid has already taken to move away from gas and increase its focus on clean electricity.
On a long-term view, demand for gas is expected to flatten out and possibly decline. By contrast, electricity growth is expected to accelerate as the energy transition continues. Distributing electricity around the UK seems like a good business to be in, to me.
On balance, I think National Grid shares look fairly priced at the moment and offer a reliable dividend yield. I’d be happy to buy the shares at current levels.