National Grid (LSE: NG) is a favourite among dividend investors, and it’s been one of the safest during the Covid-19 crash. The National Grid share price did fall 25% in the early days of the pandemic-induced lockdown. But thanks to a strong start to the year and a recent recovery, it’s actually up 3.5% so far in 2020.
But, during the kind of stock market crash we’re experiencing now, shouldn’t we ignore the safe and unaffected ones? Should we not, instead, look among the biggest fallers for the most promising recovery stocks? With the National Grid share price in positive territory this year, there’s little recovery to be had there.
Always buy the best
Well, I definitely do see a stock market slump as a great time to buy oversold fallers. But I also think that some of the best stocks to buy during a slump are the very same ones to buy all the time. In my view, that’s solid FTSE 100 stocks paying dependable dividends.
Now, there are plenty of those, so why National Grid? Especially when the year ended 31 March produced a profit fall? Full-year results showed a statutory pre-tax loss of 5%, leading to a fall in earnings per share (EPS) of 17%.
But there’s more to it than that. National Grid reported a small underlying pre-tax profit gain of 1%, while underlying EPS dropped 1%. That’s plodding rather than exciting. But the National Grid share price isn’t supposed to be an exciting one. And it’s not a company to pursue for year-on-year growth.
Long-term fortunes
No, National Grid’s long-term fortunes will reflect the wider markets and the economy. When we have tough years and weaker demand, it will reflect that. On that basis, I’m satisfied with that 2019-20 outcome, and with the share price’s progress.
The bigger part of the lockdown hit has come after National Grid’s year-end. So shareholders should expect further weakness for the current year due to falling energy demand too. And, I do see that as a threat to some of our energy suppliers.
British Gas owner Centrica, for example, has been struggling against smaller new competitors in recent years. And it’s suffered a loss of customers who have jumped ship for better deals. It’s still stuck with poor opinions on customer service too. That’s perhaps institutionalised from the days when British Gas’s monopoly status meant it didn’t need any, but it has to change.
Solid income stream
I see both threats and opportunities for the end-user energy suppliers. But how that competition goes really shouldn’t have much effect on the National Grid share price. If consumers decide to get their energy from Centrica or one of the other big suppliers, or if they plump for the smaller newcomers, it just doesn’t matter.
They all have to send their electricity and gas through the national distribution networks. And that’s National Grid.
And among tumbling FTSE 100 dividends, the National Grid one has kept up. For 2019-20 it has been boosted by 2.6%, for a 5% yield. In the short term the dividend might come under some pressure, but in the long term I expect a solid income stream.
On a price-to-earnings multiple of around 16, I rate National Grid a buy.
