National Grid (LSE:NG) can technically date its history back before 1990 as the Central Electricity Generating Board. Yet over the past few decades in its current form, it has built up a strong reputation as a leading electricity and gas provider.
National Grid shares might be down a modest 2% over the past year, but I think investors have plenty of reasons to consider buying the stock this month.
Strong dividend yield
The fact, that the share price hasn’t offered much in terms of gains isn’t the end of the world. The dividend per share is good, meaning that the dividend yield at present is 5.29%. This is comfortably above the FTSE 100 average. It’s also above the current base interest rate. Income investors can find some benefit here if wanting to add a dividend stock to a portfolio.
A defensive play
There’s still a lot of head scratching by economists as to the state of the UK economy. GDP growth of 0.1% last quarter isn’t inspiring. The concern from some is that the Bank of England is going to push the economy into a recession due to the continued rate increases.
Time will tell but, in the meantime, National Grid does offer a defensive option for investors to think about. The nature of the necessity of electricity and gas should mean that demand from customers remains consistent regardless of the state of the economy.
Growing capital investment
The business continues to invest heavily into assets. I believe this is a good thing that should support long-term share price growth as it translates into higher returns on capital employed.
For example, last year, the company invested £7.74bn, up from £7.19bn the year before. It was also split between multiple areas. The US got some funds, as did UK electricity and the NG ventures division. This should allow all sections to push forward.
Regulatory changes
Dealing with governments in the UK and the US isn’t easy and National Grid has to interact with both frequently. The company is benefiting from the Ofgem decision for the Electricity Transmission division being responsible for the delivery of 17 major electricity transmission projects in the UK. The push for clean energy, I believe, is only going to open up more revenue streams this year and beyond.
However, regulatory changes are also a risk. The change to the capital allowance regime is expected to reduce the earnings per share figure for 2023. Aside from financial changes, the company remains exposed to what the priority of the government is at any one time. This does provide something of a cloud over the stock, which isn’t going to change anytime soon.
On balance, I believe investors should consider adding National Grid shares to the portfolio in the coming month to benefit from the above points.
