Why National Grid plc Should Beat The FTSE 100 This Year

National Grid plc (LON: NG) is powering to a great 2014.

| More on:

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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

ng.2While the FTSE 100 as a whole has had a lacklustre 2014 with a fall of 5.7% to date, National Grid (LSE: NG) (NYSE: NGG.US) has bucked the trend to deliver a 10.7% gain since the start of the year to 869p.

When we add dividends that are yielding around 5% while the FTSE averages closer to 3%, that really is a market-beating performance.

Looking over the longer term, too, National Grid has been outperforming strongly. Over five years the FTSE has put on a modest 23%, while National Grid has trounced that with a 70% gain.

Valuation rising

That rise has come at a bit of a price, mind, and National Grid’s price to earnings (P/E) ratio has risen from under 11 back in 2010 to a forecast value of 16 for the year ending March 2015. That’s above the FTSE’s long-term average of 14, but with those superior dividends it’s really not pushing it.

Will this performance continue?

With individual gas and electricity suppliers under the political cosh right now, and with Labour in particular promising price freezes should it win the next election, it’s easy to see the greater attraction of a ‘picks and shovels’ investment like National Grid. With its near-monopoly on the UK’s energy distribution networks, and its significant networks in the northeastern states of the USA, it’s a very attractive investment.

“One of our best years

In May, chief executive Steve Holliday said the company had enjoyed “one of our best years ever in terms of network reliability and resilience“, having invested more than £4.3bn in essential infrastructure. He also told us of “robust cash flow performance, good growth in our asset base and lower gearing“, saying that this all helped “support our commitment to sustainable dividend growth“.

And at the end of the first quarter of the current year, reported in July, the firm maintained its outlook for the year and said it expects “another year of solid operating and financial performance and asset growth“.

Strong forecasts

Forecasts do suggest a fall in earnings per share (EPS) for the year, but there’s an improvement penciled in for March 2016. And critically, analysts are predicting a 3% rise in the dividend for a yield of 5%, followed by the same again to yield 5.1% a year later.

With dividends that far ahead of the FTSE’s average and being hiked each year by more than inflation, I still see National Grid as good value — and I wouldn’t be surprised to see the shares continuing to beat the FTSE.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Number three written on white chat bubble on blue background
Investing Articles

Just released: the 3 best growth-focused stocks to consider buying in July [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Portrait of a boy with the map of the world painted on his face.
Investing Articles

Warren Buffett’s Berkshire Hathaway dumped this growth stock. Here’s why I won’t

Eyebrows were raised when Warren Buffett's company invested in this Latin American fintech disruptor a few years ago. But now…

Read more »

Fireworks display in the shape of willow at Newcastle, Co. Down , Northern Ireland at Halloween.
Investing Articles

£15k to spend? 3 UK shares, investment trusts and ETFs to consider for a £1,185 second income

By harnessing a range of different dividend stocks, I'm confident this mini portfolio might pay a large long-term second income.

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Is Tesla stock about to crash?

Tesla stock was on the slide today, shedding around $80bn in market value. What's going on with the electric vehicle…

Read more »

Thoughtful man using his phone while riding on a train and looking through the window
Investing Articles

Should British investors consider buying Apple stock while it’s down 14% in 2025?

Apple stock has underperformed in 2025, falling more than 10%. Is this the buying opportunity UK investors have been waiting…

Read more »

Two business people sitting at cafe working on new project using laptop. Young businesswoman taking notes and businessman working on laptop computer.
US Stock

2 AI growth shares that I think are still undervalued

Jon Smith flags up two AI growth shares that aren't as overhyped as some peers, making them appealing for him…

Read more »

Thoughtful man using his phone while riding on a train and looking through the window
Investing Articles

Where is the next Nvidia stock right now?

Nvidia stock has delivered jaw-dropping gains. Here are 10 growth shares that have the potential to also produce big returns…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Could these FTSE 100 stocks explode in July?

Looking for FTSE stocks that could catch fire this month? Here are the share price prospects of two popular London…

Read more »