Despite a jump in profit to £4.6bn, National Grid (LSE: NG.) shares dipped a couple of percent in early trading Thursday.
That’s adjusted operating profit from continuing operations, mind, and it doesn’t include UK gas transmission. But gas is a burden these days, and the company is leaving it behind.
The £4.6bn is 15% higher than last year at actual exchange rates, which looks very good. The bottom line saw a 7% rise in underlying earnings per share (EPS).
Progressive dividend
The dividend for the full year was lifted by nearly 9% to 55.44p per share, for a 4.9% yield. That’s a good return, and it’s nicely progressive in a year with such high inflation.
So why did National Grid shares drop? Well, there’s one cloud on the horizon, and it’s all about the UK’s race to turn the country carbon-free by 2035.
National Grid faces claims that it’s been too slow to connect up renewable energy sources to the grid. And in a regulated industry, I doubt shareholders want to see Ofgem stepping in and getting in the way of business.
Regulated business
But when it comes to companies in regulated industries, I do think National Grid could be one of those facing less long-term risk on that score.
Chief executive John Pettigrew said: “The opportunities for future growth are considerable, and we will continue to work closely with governments and regulators to drive the energy transition forward, achieving positive change for our communities and consumers, and a clean, fair and affordable energy future for all.”
Total returns
I tend to think of National Grid as an income stock. But it’s easy to forget the share price gains of the past few years.
Over five years, National Grid shares have climbed by 28%. They’ve been up and down a bit, but remained resilient through the Covid crisis.
Dividends added around another 25% to that, for a very nice total return.
Forecasts put the stock on a price-to-earnings (P/E) ratio of around 15. With earnings expected to grow only slowly in the next few years, I think that might be fully valued at the moment.
FTSE 100 income
Still, I think the relative stability of the dividend could make it one of the best FTSE 100 stocks for income investors.
I mean, someone investing £500 per month in National Grid shares could build up a pot of more than £200,000 in 20 years. That’s if the dividend yield averages 5% over that time. And it’s from dividends alone, not including any share price gains.
Should we see a total average return of perhaps 8%, we’d be close to £290,000. And that in turn could provide annual income of £14,500 from dividends. I’d take that as a nice top-up for my retirement cash.
Risks ahead
National Grid does have to work through a few risks in the coming years. Even having to meet its net-zero obligations could mean higher costs.
But I still rate it as probably the best stock I’ve never bought. That might change soon, though!
