It’s been a surprisingly positive year for investors in National Grid (LSE: NG), with the distributor of electricity throughout the UK posting share price gains of 8% since the turn of the year. This compares favourably to the FTSE 100, which is down 2% over the same time period. Indeed, National Grid could prove to be a strong performer moving forward and, as such, has the potential to make a positive impact on your mortgage repayments. Here’s why.
A Top-Notch Yield
With a current yield of 5.1%, National Grid continues to sit close to the summit of high-yielding FTSE 100 shares. Furthermore, the company is aiming to increase dividends per share at a pace that is at least equal to inflation over the medium term. This might not sound like a great deal when inflation is less than 3%, and when other companies in the FTSE 100 are set to increase their dividends per share at a faster rate.
However, it could prove to be a great asset to holders of shares in National Grid, since the amount of quantitative easing that has taken place is likely to cause higher levels of inflation over the medium term than has been the case during the last few years. Dividends that rise with inflation could become the must-have income accessory, which may mean shares in National Grid are bid up to higher levels.
Growth Potential
Although utilities such as National Grid are unlikely to ever be classed as growth stocks, they can offer investors at least some bottom line uplifts. For example, National Grid is forecast to increase earnings by 6% next year, which is very much in-line with the wider index. In addition, the vast amount of capital expenditure that is currently being undertaken by the company should help to grow the regulatory asset base and, ultimately, increase net asset value. This could help shares to push even higher over the medium to long term.
Looking Ahead
Although the utility sector comes with a generous dollop of political risk at present, with a possible change in government making investors uneasy about pricing, new laws etc, National Grid is likely to be among the least affected by such issues. That’s because it does not directly charge domestic customers and so tends to avoid the focus of politicians and the media, which could be good news for investors going forward.
Indeed, despite shares in National Grid rising by 8% in 2014, they continue to offer good value for money. They trade on a price to earnings (P/E) ratio of just 12.8, which is lower than the FTSE 100’s P/E of 13.5 and, when combined with some growth potential and a top-notch yield, it means that National Grid could make a positive contribution to your mortgage payments over the long term.
