Today I am looking at why I believe National Grid (LSE: NG) (NYSE: NGG.US) is an excellent investment choice for shrewd investors.
Exciting growth story spanning the Atlantic
National Grid is on a major infrastructure drive in both the UK and US, and has earmarked up to £3.9bn as it seeks to bolster its asset base and charge up future earnings potential.
The electricity play has set out its stall to grow assets by up to 6% per year, and as well as accelerating its activity in Britain — including the London Power Tunnels project and progressing the western high-voltage direct current (HVDC) link with Scotland — it is also dedicating huge sums on colossal projects in North America, including the $800m New England East West System transmission scheme.
A delectable dividend story
For investors seeking access to weighty dividends, in my opinion National Grid is a stock that is difficult to pass up. A rights issue in 2011 saw the company’s full-year dividend slip 5.5% from the previous year, but this a blip in what is an otherwise respectable multi-year record of payout hikes.
The City’s number crunchers expect National Grid to follow up last year’s 4% dividend increase, to 40.85p, with a further 3.2% rise in the year ending March 2014 to 42.14p per share. And a 3% increase is touted for the following 12-month period. These projections are roughly in line with the company’s aim to grow dividends at least in line with retail price inflation well into the future, and I would not be surprised to see these figures upgraded closer to the time.
And prospective dividends for 2014 and 2015 currently carry yields of 5.7% and 5.8% correspondingly, far in excess of the forward average of 4.8% for the complete gas, water and multiutilities sector and smashing the respective reading of 3.2% for the FTSE 100.
Plug in for earnings turnaround
After a forecast 6% decline in earnings for the current year, to 53p, brokers expect a recovery to kick in from next year with an initial 3% recovery pencilled in for 2015, to 55p.
Not only is the company witnessing solid progress across the entire group, but National Grid is confident that the government’s recent Balancing Services Incentive Scheme — designed to shake up regulations across the electricity industry — will allow it to secure additional revenues. Pushed by its asset drive, in my opinion the business is in a strong position to realise excellent growth over the long term.
