Today I am looking at why I still consider National Grid (LSE: NG) (NYSE: NGG.US) to be a lucrative dividend stock.
Perky payout prospects on the table
Fortunately for investors, National Grid’s vertically-integrated model means that it doesn’t face the scrutiny of rising bills like fellow electricity plays such as Centrica and SSE. In the run-up to next year’s general election, politicians from both sides of the House will be desperate to grab the initiative over the emotive issue of rising household expenses, in turn whacking the earnings profile of energy giants like the two just mentioned.
Given this tough backdrop, in my opinion National Grid is a much more secure bet for dividend hunters than the rest of Britain’s utilities sector, which used to be a happy hunting ground for savvy income seekers.
The UK’s biggest electricity companies have already been forced to put the brakes on potential tariff hikes to limit waves of bad publicity ahead 
of the Westminster run-off. And with Ofgem last month referring the country’s so-called ‘Big Six’ providers to the Competition and Markets Authority, a situation that could lead to the break-up of these firms, the situation could be set to get much worse.
The country’s water sector is also subject to huge uncertainty, with regulator Ofwat scrutinising the price plans of the industry’s largest operators for the next several years. With Severn Trent warning of inflationary and cost pressures earlier this month, revenue constraints could also significantly hit the water providers’ earnings and dividend prospects.
National Grid is, I have explained, spared the same scrutiny and can therefore be considered a much safer bet for income hunters. And according to City brokers, the business is anticipated to lift last year’s 42.03p per share dividend to 43.3p in the year concluding March 2015, with a further hike to 44.6p pencilled in for next year.
These projections generate substantial yields of 5% and 5.2% for 2015 and 2016 correspondingly, soaring above a forward average of 4.6% for the complete gas, water and multiutilities sector and beating a respective readout of 3.2% for the FTSE 100.
The company is not without problems, however, and the amount of money required to keep Britain’s creaking power infrastructure grid up is nothing short of phenomenal. However, the new RIIO price controls due to run for three years from 2015 will enable the firm to cork unnecessary expenditure while still boosting its asset base, a promising omen for both cash flows and earnings potential. Thus I expect dividends to continue heading higher in coming years.
