With £2k to invest, I’d buy 201 National Grid shares for £116 in yearly income

National Grid looks well-placed for the energy revolution and the shares are attractive with an almost 6% dividend yield.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Windmills for electric power production.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Energy company National Grid (LSE: NG) has shares yielding almost 6%. And that’s one of the biggest dividends in the FTSE 100 index.

If I were building up a portfolio of shares focused on passive income from dividends, the stock would be one of my first choices.

A rising yield

Meanwhile, my personal bottom limit for investing in one stock is £2k. And that’s because a sum of that size makes sense of the transaction fees such as the broker’s charge, spreads and tax.

With the share price near 990p, my £2k would buy approximately 201 shares allowing for costs. And with those in my portfolio, I’d be able to look forward to receiving around £116 relating to the firm’s current trading year.

However, one of the main reasons for picking National Grid is that the company has a good multi-year record of raising its dividends each year. Dividends have gone up a little each time since 2019. And City analysts predict decent single-digit percentage rises for this year and next.

So that £116 annual income may just be the start. And if I held the stock for 10 years or longer, the income may increase over time allowing me to compound my returns.

But that’s not all. It’s also possible for the share price to rise to reflect better business earnings from year to year. And although such positive outcomes are not guaranteed, analysts do predict higher earnings ahead.

National Grid owns and operates regulated electricity power businesses in the UK and in the US. Part of its responsibilities involves owning and operating the UK’s national power grid, which is the UK’s high-voltage power transmission network.

Placed well for the energy revolution

Most parts of the business operate as geographical monopolies. However, there are risks. Regulators require the company to invest heavily to maintain and improve its energy infrastructure. One consequence for the company is a high debt load. And the directors will always need to balance debt interest payments against rewarding shareholders with dividends.

If the regulatory environment shifts to become more onerous, it’s possible dividends may shrink in the future.

But on the other hand, National Grid looks well-placed to benefit from the green energy revolution on both sides of the Atlantic. So, as with most businesses, there are both risks and potential opportunities for investors to consider before buying shares.

Back in May with the full-year results report, chief executive John Pettigrew was upbeat. 

The firm’s strategic pivot towards electricity and away from gas assets is complete, Pettigrew said. And: “There has never been a more exciting time to be at the heart of the energy industry.”

Investing £2k in the company’s shares would be part of a wider programme of stock investment for me. And I’d aim to build up a diversified portfolio of stocks backed by solid, well-placed businesses such as National Grid.

I’d aim to hold for the long term while compounding my gains and reinvesting dividend income along the way.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Middle-aged black male working at home desk
Investing Articles

Are these top-traded FTSE 100 shares the best to buy for 2024?

The market has disagreed with me pretty much all year on the best buys among FTSE 100 shares. But, are…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

My five favourite forms of passive income

I've been looking for ways to pump up my passive income, so I can retire richer. But which of these…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

What’s the FTSE 100’s best 10% dividend yield?

Depressed prices have thrown up some golden opportunities on the FTSE 100. Which of these 10%-yielding Footsie stocks should I…

Read more »

Two white male workmen working on site at an oil rig
Investing Articles

BP shares look dirt cheap

Are BP shares a brilliant bargain? The financials look excellent and it’s hard not to call them anything other than…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Investing Articles

My 12 fears for the stock market in 2024

After a terrific year for global stock markets in 2023, what can I look forward to in 2024? As a…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

2 income shares for bumper dividends in 2024

I own these two income shares for their outstanding ability to deliver billions of pounds of cash dividends each year…

Read more »

Investing Articles

Could the IAG share price hit £2.11 in 2024?

According to analysts, the IAG share price could be headed for £2.11. But Stephen Wright wonders whether the stock is…

Read more »

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

1 hot UK growth stock I’m buying right now

I've more than doubled my money on this UK growth stock. But with a 948% boost to earnings, I think…

Read more »