When it comes to passive income stocks, UK investors are spoilt for choice at the moment. From banks to miners, there are a lot of high yielders out there.
One stock that I see as a great choice for income seekers is utilities company National Grid (LSE: NG.). Here are five reasons I like it.
Attractive yield
Let’s start with the dividend yield. At present, analysts expect National Grid to pay out 57.7p per share in dividends this financial year (ending 31 March 2024).
At today’s share price, that translates to a yield of 5.9%.
That’s not the highest yield in the FTSE 100, but it’s certainly attractive. For reference, the median forward-looking yield across the Footsie is about 3.8%.
Reliable dividend payer
But it’s not just the yield that’s appealing here. Another thing National Grid has going for it is that it’s a very consistent dividend payer.
Unlike a lot of other high yielders (banks, insurers, housebuilders, oil majors, etc) the company hasn’t cut its payout over the last five years.
This consistency is a very attractive attribute, to my mind.
Consistent dividend increases
National Grid also has a great track record when it comes to increasing its payouts. This is shown in the table below. Over the last five years, the payout has climbed by about 21%.
| Year | FY2018 | FY2019 | FY2020 | FY2021 | FY2022 | FY2023 | FY2024E |
| Dividend per share | 45.7p | 47.3p | 48.6p | 49.2p | 51.0p | 55.4p | 57.7p |
So investors have received a growing income stream. This will have helped them beat inflation.
Growth and defence
As for the business itself, I think it offers a nice mix of growth and defence.
On the growth side, National Grid expects to benefit from the transition to clean energy. Next financial year and the year after it’s looking for earnings growth of 6-8%.
Meanwhile, on the defensive side, demand for its services is unlikely to suddenly fall off a cliff. People are always going to need electricity and gas.
Reasonable valuation
Finally, the valuation is reasonable, to my mind. Currently, the forward-looking price-to-earnings (P/E) ratio here is about 14.2. I think that’s fair, given the company’s track record.
Risks
Of course, as with any stock, there are risks here. One is debt on the balance sheet. At the end of March, net debt stood at around £41bn. The interest payments on this debt could limit dividend growth going forward.
Another risk is higher bond yields. Now that gilts offer attractive yields again, we could see income investors move capital out of dividend stocks like National Grid and into gilts. This could limit share price gains.
A top income stock
All things considered however, I see it as a great choice for income.
If generating passive income was my goal, I wouldn’t hesitate to buy the stock for my portfolio.
