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Why National Grid plc Has Underperformed The FTSE 100 Over The Past Year

The share price of National Grid (LSE: NG) (NYSE: NGG.US) has underperformed the FTSE 100 over the past year, rising only 8.8% compared to the index’s 14% gain.

So what’s been going wrong?

Well, it actually seemed like things were going right earlier this year. Indeed, by mid-May National Grid’s share price was up 23% since the start of September 2012, against the index’s 16% rise.

But then between late May and late June the FTSE 100 fell 12%, and National Grid’s share price fell even further. Despite some rallying since, the price has failed to catch up with the index, let alone regain its lead.

If that doesn’t sound like much of an explanation for National Grid’s underperformance, that’s because there’s really been no negative news from the company to account for it. In fact, it’s all been pretty positive.

In its half-year results issued in September 2012, the company reported significant increases in both statutory profits — operating profit was up 17%, and pre-tax profit was up 37%.

Earnings per share also rose 32%, and the company increased its interim dividend by 4%, in line with its then policy. Chief executive Steve Halliday commented that National Grid was “well positioned to deliver another year of good operating and financial performance.

At the end of February this year, the company announced that it had concluded its long negotiations with Ofgem about how much it could earn from its regulated UK assets.

The arrangements will run for eight years, and the long-term clarity they provide will allow National Grid to focus on the operational efficiency and infrastructure development needed to ultimately deliver shareholder value.

And in mid-May the company released its full-year results, in which it reported underlying pre-tax profit up 6 % to £2.7bn, on a 4% rise in revenue.

Underlying earnings per share were up 12%, at 56.1p, which was consistent with market expectations. And the final dividend was raised 4%, in line with the new policy of growing the ordinary dividend “at least in line with the rate of RPI inflation each year for the foreseeable future“.

So ignoring the capriciousness of recent market sentiment, and looking at the numbers, National Grid’s performance over the past year has really been rather good.

And its substantial dividend yield of close to 5.5% adds greatly to its attractions. Perhaps now while the share is lagging the FTSE is a good opportunity to buy a reliable income-generating investment for the long-term.

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> Jon owns shares in National Grid.