National Grid plc Could Help You Retire Early

Retirement may not be so long away for shareholders in National Grid plc (LON: NG). Here’s why…

Peter Stephens

Having held various senior management positions in the manufacturing sector, Peter founded his own manufacturing company in 1996. This was subsequently sold in 2007. Meanwhile, his passion for investing (which began during the privatisations of the 1980s) remains strong and he couples this with writing for The Motley Fool as a Contractor. His investment style is value-oriented; focusing on company fundamentals, as well as assessing the strength and presence of a competitive advantage. While above-average growth prospects remain very attractive, a greater focus on dividends has crept in since Peter became a part-time retiree in 2007.

Published 17 February, 2014 4:59 pm GMT

| More on: NG.NGG

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

National Grid (LSE: NG) (NYSE: NGG.US) continues to be a relatively attractive stock for income-seeking investors, since it offers a yield of 5.2%. This is almost 50% higher than the yield on the FTSE 100, so it’s clear to see why.

Indeed, with interest rates not set to go up over the short to medium term and inflation still being a threat as a result of the vast scale of quantitative easing, a decent yield could remain a high priority for many Foolish investors.

Furthermore, the pace at which dividends per share are set to increase in future may, in actual fact, prove to be more important than a relatively attractive yield. Certainly, a great yield helps but a dividend that is set to increase at a rate that is lower than inflation could, over the longer term, lose its appeal.

That’s where National Grid makes its case as an attractive income play, since management have set a target to increase dividends per share at a rate that is higher than inflation for the foreseeable future.

This means that National Grid not only comes with a yield that is nigh on 50% better than that of the wider index, but it also comes with a decent growth rate, too. This could make it a highly attractive income play.

In addition, National Grid continues to offer defensive qualities that could come in useful should the market have a disappointing 2014. This could occur for any number of reasons, but one possibility may be a disappointment with regards to growth in profitability during 2014.

That’s because the stock market has rerated upwards many companies on the basis that they look set to deliver improved bottom-line figures in 2014. Were they to disappoint, the market could conceivably de-rate them, leaving companies such as National Grid in greater demand due to their innate defensive properties.

For instance, over the last five years National Grid has delivered, on average, earnings per share (EPS) growth of 6% per annum. While the range of EPS growth in each year can be fairly wide, the fact that National Grid’s pricing is set through a regulator means that the company (and its shareholders) should receive a relatively attractive return.

This provides stability to the business and, during challenging market conditions, it could prove to be very useful. Furthermore, a slow and steady approach could make a contribution to helping you retire early.