Over many years, the FTSE 100‘s National Grid (LSE: NG) has been a consistent payer of shareholder dividends. But this well-placed utility company could be about to ramp up its own growth prospects.
The company is known for owning and operating the electricity transmission system in England and Wales. And it also owns and operates Great Britain’s national gas transmission system. And neither of those two systems take energy all the way to households and businesses.
But since 2000, National Grid has been acquiring and operating energy assets in the US as well. And its gas and electricity businesses in America do supply energy directly to customers.
Growth from the US portfolio
Operations in the US have been a growth area for National Grid. And in the trading year to March 2021, the American business delivered around 45% of the company’s overall operating profit. So it looks like the US expansion programme has been a success so far. And it’s certainly been a big contributor to that stream of shareholder dividends.
Part of the success in the US arose because National Grid owns both transmission and distribution systems. And recently, the company has been making deals in the UK that seem to mirror the set-up in the US.
For example, on 14 June 2021, the company completed its acquisition of Western Power Distribution (WPD). In March that year, the directors described WPD as the UK’s largest electricity distribution business. And that means National Grid is taking on local networks of smaller pylons and cables running at lower voltages to supply homes and businesses. Indeed, WPD serves around 8m customers in the Midlands, South Wales, and the South West.
Last year, the directors also unveiled plans to sell National Grid’s majority stake in National Grid Gas plc, the owner of the national gas transmission system. And the idea behind these moves is to “pivot National Grid’s UK portfolio towards electricity”.
Strengthening the long-term outlook
Around 70% of overall assets look set to be in electricity. And the directors said last year the strategy will strengthen the long-term growth outlook. And it seems to me the future is looking increasingly electric when it comes to how the UK uses energy. So, the way National Grid has been positioning itself is exciting. And it looks like new growth potential is beginning to emerge in the company.
But there’s no certainty the firm’s growth expectations will be realised. All businesses face operational challenges from time to time. And my hopes for growth and dividends from this stock could be dashed if things fail to develop smoothly.
However, with the share price near 1,078p, the forward-looking dividend yield is just below 4.9% for the trading year to March 2023. And that’s attractive to me regardless of whether growth materialises in the years ahead or not.
