National Grid (LSE: NG.) shares have qualities that I rate highly for long-term investments.
Putting cash in a SIPP means we’re in it for the long term. And for me, a pension investment really is one to sit back and ignore for a few decades.
National Grid is the kind of stock that I could easily hold and ignore. I mean, what’s changed about it in the past 20 years or so? Not a lot.
Monopoly
It just keeps on doing its monopoly thing, raking in the cash and paying dividends. It has a clear view of future revenues too, which gives me confidence in its ability to keep doing the same for the next 20 years.
On 5 October, the energy grid operator gave us an update ahead of first-half results. And it was reassuringly dull.
I like dull, because it means nothing unexpected has happened. I’ve seen a lot of unexpected stock market things in the past decade, and not many of them were good.
Year so far
What’s the year looking like for National Grid so far? Well, “the group continues to perform in line with expectations,” it seems.
Earnings per share (EPS) should be more weighted to the second half, mainly due to an uneven split in the US. UK-regulated business should be “broadly evenly split across the year.”
So, nothing to get excited about. And once again, it looks like SIPP holders who own National Grid shares can relax.
Second half
The firm stressed that its “New York business is expected to deliver 10-15% of its full year operating profit in the first half, given a higher non-cash environmental provision charge.”
The actual half-year results should be with us on 9 November. And it sounds like we shouldn’t be disappointed if they look a bit weak, with the second half expected to make up for any first-half shortfall.
Broker forecasts go along with the ‘everything in line with expectations’ thing.
They show a forward price-to-earnings (P/E) ratio of 14, which would drop to 13 in another two years.
Progressive dividend
The dividend yield, now at 6%, could reach 6.5% in the same time if they’re right.
The National Grid dividend has been one of the most stable in the FTSE 100 for a long time. And it’s been steadily progressive.
With its last full-year results, the board said it expects to grow earnings by 6-8% per year until 2025-26. If if can do that, I think the dividend should be safe.
At today’s yield, it’s one of my top options for my next stock buy.
Risks too
National Grid is in a regulated market, though, which can hold it back. And it’s a capital-intensive business too, with high costs of reinvestment in infrastructure.
Then there’s a net debt pile of £41bn as of March 2023. Much of that is due to the acquisition of Western Power Distribution in 2021. So it has its risks.
But I still rate National Grid among the UK’s most reliable income stocks for long-term SIPP investors.
