Na­tional Grid recom­mits to div­i­dend growth prom­ise

Shares in util­ity could help you beat in­fla­tion

Shares - - CONTENTS -

Bri­tain’s largest util­ity sup­plier Na­tional Grid (NG.) has re­newed its com­mit­ment to grow its div­i­dend to match RPI (re­tail price in­dex) in­fla­tion or bet­ter ‘for the fore­see­able fu­ture.’

This is wel­come news for in­vestors look­ing for re­li­able and at­trac­tive in­come for two rea­sons. First is an in­creas­ingly dovish Bank of Eng­land. Ris­ing in­ter­est rates work against in­come eq­uity as the risk pre­mium nar­rows.

That’s the dif­fer­ence be­tween im­plied in­vestor re­turns from higher risk as­sets like shares ver­sus the rel­a­tive safety of Gov­ern­ment bonds (Gilts) or keep­ing your money in the bank.

A weak pound and fad­ing con­sumer spend­ing have com­bined to cap in­fla­tion­ary pres­sures, mak­ing a rate rise much less likely in the short-term.

Sec­ond, Na­tional Grid ar­guably re­mains the UK util­ity com­pany least threat­ened by possible stiffer reg­u­la­tory cli­mate in fu­ture. UK en­ergy sup­pli­ers, such as Bri­tish Gas-owner Cen­trica (CNA), are fac­ing the in­tro­duc­tion of tar­iff price caps which could limit div­i­dend growth in fu­ture.

UK wa­ter com­pa­nies have also been dogged by po­lit­i­cal and reg­u­la­tory is­sues. Ofwat is tight­en­ing the way it works out al­low­able re­turns sec­tor com­pa­nies can make for the next five year price re­view pe­riod, which runs from 2019.


Na­tional Grid faces its own watch­dog probe, with Ofgem due to ex­am­ine whether the com­pany has breached rules re­lat­ing to the operation of its UK transmission busi­ness. But many an­a­lysts an­tic­i­pate that the in­ves­ti­ga­tion will re­sult in lit­tle mean­ing­ful im­pact.

Na­tional Grid has a long track record of steadily in­creas­ing div­i­dends, dat­ing be­yond the 2002 merger with Lat­tice, which formed an elec­tric­ity and gas transmission na­tional cham­pion. It has missed its pay­out growth tar­get just once in the past 10 years (2012).

The rough £30bn FTSE 100 com­pany pro­posed a 30.44p power share sec­ond half div­i­dend along­side full year re­sults to 31 March 2018, an­nounced on 17 May. If share­hold­ers ap­prove that pay­out it will put the full year in­come at 45.93p per share, and mean a sixth straight year of div­i­dend growth.

Fu­ture div­i­dends of 47.12p, 48.6p and 50.23p are an­tic­i­pated for the 2019, 2020 and 2021 full years, ac­cord­ing to con­sen­sus fore­casts, im­ply­ing av­er­age an­nual growth of 3%. UK in­fla­tion was re­cently re­ported at 2.4% CPI for April, with Na­tional Grid’s RPI bench­mark run­ning at 2.2% in April. At 879.8p, the in­come yield this year is an im­plied 5.4%. (SF)

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