National Grid (LSE: NG.) shares have had an underwhelming few years. From a 1,020p high in 2016, the shares have grown only 6% up to 1,083p today. No problem, you might think, this is a bona fide dividend stock.
Well, the dividends over the same time frame haven’t been mindblowing. The yield has hovered in the 4% to 6% range, currently sitting at 4.16%. That’s solid income, in fairness. Anyone looking for that kind of drawdown might be happy with it. But, as I say, not mindblowing. Given the spectacular advantages a ‘monopoly’ company like National Grid has, you could call it disappointing.
Where do we go from here? Does the company providing the nation’s (and parts of the US’s) energy have better times ahead? Or is this a stodgy old dividend stock best suited for cautious retirement portfolios?
Costs
These days, no discussion of National Grid is complete without mention of its role in the Net Zero transition. The cost of building new infrastructure is one reason for a stagnant share price. The firm even held a rights issue to raise £7bn for such expenditure.
Diluting shares is more common with tiny pre-profit firms running out of cash. It’s hardly common for a £50bn company with some of the most stable income streams going.
Changing Britain’s infrastructure to accommodate things like new offshore wind projects is costly, of course. Adding onto funds put forward from the government, National Grid have pledged £60bn for the project. The spending has already bumped up debt levels from around £30bn to around £50bn in five years. The worry, as I see it, is that costs could spiral as they have a habit of doing when building things in this country.
Positives
In the midst of many crises, there are opportunities. And that may be the case with National Grid shares.
One consequence of the massive infrastructure spending is National Grid’s network providing more of the nation’s energy. This is because more homes will be using electricity for heating as we shift away from gas.
Combine that with a growing population. One ONS forecast has the UK growing from 69m people to 76m people by 2047. Both factors should boost earnings over the long term.
Lastly, due to the nature of its monopoly, those earnings are indeed very stable. National Grid has no competitor for its England and Wales operations, nor is one likely to appear and build its own electricity transmission infrastructure. This offers a level of safety that few FTSE 100 companies can compete with.
For anyone looking for a safe dividend stock, I think this is one to consider. The green shoots of a growing share price might be there too. In years to come, it might even be considered a bargain, too.
