I believe electricity grid operator National Grid (LSE: NG) is an exceptional UK dividend share to buy today.
2020 was a bloodbath for income hunters as Covid-19 caused hundreds of British companies to cut or cancel dividend payments. But this FTSE 100 company was still able to keep hiking its own dividends, a testament to its ultra-defensive operations. These very same non-cyclical operations mean that National Grid remains a top dividend share as concerns over the economic recovery linger, in my opinion.
These types of UK shares aren’t without their share of risk however. The threat of punishing regulatory action is always in the background. In fact, Ofgem recently called for a new independent body to take over the running of Britain’s electricity system from National Grid.
There’s also the problem of high costs to contend with. This isn’t just because it’s mightily expensive to keep the power grid operational in the UK and in its US territories. As we’ve seen this week, extreme weather patterns in the States are becoming an increasingly regular problem. And this is hitting National Grid hard in the pocket.
Dividends tipped to keep rising
There’s never any guarantee that broker forecasts will hit the mark. Estimates can come in better or worse than expected, depending on trading conditions. But City analysts expect National Grid’s dividends to keep growing over the next few years, at least.
This is even though annual earnings are predicted to dip in the short term. A 6% decline is predicted for this fiscal year to March. It’s because those analysts predict earnings at the FTSE 100 company will rise over the following couple of years. Increases of 14% and 7% are anticipated for financial 2022 and 2023 respectively.
A top UK dividend share
UK shares like this are famed for their ability to grow annual profits over the long term. It’s a quality that’s enabled the power grid operator to raise annual dividends consistently for almost a decade. And, as I say, analysts reckon National Grid will have the balance sheet strength to keep raising shareholder payouts. That’s despite the predicted profits blip for this year. The company raised around £3.5bn of long-term financing this year to shore up its fiscal position.
City brokers aren’t perturbed by the fact predicted dividends are barely covered by expected earnings over the next few years. Dividend coverage of 1.1 times to 1.2 times sits well below the widely-regarded safety benchmark of 2 times. Dividend cover is a popular way to gauge a UK share’s ability to pay dividends to its investors.
A total dividend of 49.5p per share is predicted for this year, up from 48.57p last time out. Payouts are expected to move to 50.45p and 51.54p per share in fiscal 2022 and 2023. And this means National Grid’s huge 5.8% dividend yield for this year marches to 5.9% for 2022, and 6% for the following year.
