National Grid shares now offering a yield of 4.8%

Dividend forecast National Grid SSE

It’s been a rollercoaster ride for shares in National Grid (LON:NG) (NG.L) over the last twelve months.

The stock soared to 1,130p immediately after the Brexit vote last year, as investors piled into defensive stocks on the back of increased political uncertainty. However, the shares plummeted late last year after Donald Trump’s shock US election victory and his proposed infrastructure spending plans sent inflation expectations surging higher. By December National Grid was trading back below 900p.

The stock then enjoyed a steady run upwards over the first five months of this year, trading within a whisker of 1,100p again in May, before falling again recently over the last six weeks after the general election result. Talk of energy tariff rate caps and possible nationalisation of the big utility companies has clearly affected sentiment towards the sector. So much for ‘stable’ utility companies.

Dividend opportunity

While most investors don’t like seeing their shares fall in price, long-term dividend investors understand that share price declines bring opportunities. That’s because a company’s dividend yield is inversely related to its share price performance. When the share price falls, the dividend yield increases.

And that’s exactly what has happened with National Grid.

At a share price of 1,097p on the last day of May, National Grid’s FY2017 dividend payout of 44.27p equated to a yield of 4.04%. However, with the stock now trading around the 930p mark, the yield on offer has been elevated to 4.76%. That’s quite some boost.

National Grid has stated that it plans to increase the dividend in line with RPI inflation for the foreseeable future. With inflation picking up recently, that’s a positive for investors relying on dividends for income.

There’s no doubt that government intervention adds an element of uncertainty to the investment case across the utilities sector, however on a forward looking P/E ratio of 14.3 with a yield of 4.7% (covered by earnings 1.3 times), I believe shares in National Grid are worth a closer look. After all, I can’t see demand for electricity declining any time soon.

Disclosure: Edward Sheldon, CFA has no position in National Grid. 

This article is provided for general information only and is not intended to be investment advice. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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