Since late August, the National Grid (LSE: NG) share price is down by just over 25%.
But to put that move in perspective, the recent 885p means the energy company’s stock has eased back by less than 1% over the past year.
Nevertheless, a 25% drop over less than two months is significant. And the current wave of market bearishness has probably affected the stock. But on top of that, I’ve heard rumours that some pension funds have been selling liquid equities (shares). And National Grid is a large business. So, it’s easy to trade the company’s shares in size to raise cash fast.
The business remains sound
But whether problems in the bond market are causing pension funds to sell shares in a fire sale is a matter of speculation for me. And whatever the reasons behind the recent slide in National Grid shares, the fundamentals of the business appear to remain sound. So, I see the move lower as a discount to the amount the shares cost in August.
On Monday, the firm released its pre-close update ahead of its half-year results to 30 September. Overall trading has been in line with the directors’ expectations. Meanwhile, City analysts predict earnings will rise by almost 70% in the current trading year to March 2023. And by almost 12% the year after.
We’ll find out more about recent progress with the half-year results report due on 10 November. But I continue to see National Grid as a worthwhile candidate for my diversified portfolio. I think the business stands out in its sector because of its unique position at the heart of the UK’s energy infrastructure. And it also has a valuable business operating in the US.
A robust dividend record
The company has a robust history of paying shareholder dividends. My Foolish colleague Roland Head pointed out recently that the company hasn’t cut the dividend in 26 years. And it’s increased the payout in most years since 1996.
Meanwhile, with the share price near its current level, the forward-looking yield is running just above 6%. That’s for the trading year to March 2024. And it arises because analysts have pencilled in mid-single-digit percentage increases in the shareholder payment for this year and next. Of course, there’s always the potential for estimates to be wrong. But I see the steady and rising dividend as one of the main attractions of the stock.
Regulation and debt
In many ways, National Grid is the ideal dividend-led investment for me. The company operates in a steady sector with consistent demand. And its electricity transmission network in the UK commands a monopoly position. However, operations both sides of the Atlantic are subject to heavy regulation and regulatory scrutiny.
One of the outcomes of this is the requirement for National Grid to constantly invest in its infrastructure. And that has led to the firm’s high level of borrowings. However, I’m inclined to balance debt and regulatory risks against the company’s long and consistent dividend record. And this means, rightly or wrongly, that I’d see the shares as attractive now for me to hold for the long term if I had some spare cash to do so.