Up 5% in March: why National Grid shares are worth considering now

At 1,070p, the National Grid (LSE:NG) share price has risen just over 5% since 1 March.

And that’s a good sign, as many other stocks have fallen in the past week.

But one of the most important things for investors is that this utility company has not cut its dividend in 27 years. And this has increased shareholder payouts over the years since 1996.

A chunky yield

Currently, the expected yield is running at just over 5.4% for the trading year to March 2024. And the compound annual growth rate of the dividend is just over 1%.

It is not a massive growth rate. But the yield rate is worth having. And the consistency of those dividend payments is really important.

To put the March stock price in perspective, the stock is still nearly 5% lower than a year ago. But value has been built into the business fundamentals. And because of that, it makes sense for the stock to go higher now.

The company transmits and distributes electricity and gas. But it has engaged in a strategic pivot to higher-end electricity assets.

And to do that, have bought and sold businesses. For example, in 2021, they acquired Western Power Distribution, a British electricity distribution business. And last year, he sold his electricity and gas business in Rhode Island.

The latest major divestment occurred at the end of January when the company completed the sale of its 60% equity interest in its UK gas transmission and metering business.

After the change, National Grid has about 70% of its assets in electricity infrastructure and 30% in gas. With US business approximately 40% of total assets.

Dividends still ahead

The tilt towards higher growth electric assets is positive. And more recent clues are coming in to suggest that shareholder dividends may remain safe. On March 3, the company announced it accepted Ofgem’s RIIO-ED2 network price control.

The UK energy regulator sets price controls for gas and electricity network companies. And that control balances the relationship between the investment in the network, the company’s return, and the amount that the company can spend on operating the network.

Previously, the director of National Grid said that it will consider the Final Determination of control. And they want to make sure they incentivize companies to make a reasonable investment into the network.

Therefore, accepting the current deal is very positive. Directors say price controls will accelerate the delivery of a smart and decarbonised electricity distribution network in the UK. And that will be achieved at the lowest possible cost to our customers.

The deal is also an important part of the company’s wider financial framework. And it allows investment of up to £40bn between 2021 and 2026.

Meanwhile, National Grid has a firm commitment to pay shareholder dividends along with interest payments on its large debt pile. These loans represent some risk. But I see an agreement like this with Ofgem as something of an acknowledgment of the importance of balance.

Therefore, I would be inclined to believe the company’s strong dividend record. City analysts are predicting a single-digit percentage increase in shareholder payouts next year. And I see stocks as attractive.