The National Grid (LSE: NG.) share price was soaring in early 2022.
But since a peak in April that year, it’s lost 18%. For one of the FTSE 100‘s most stable long-term stocks, that’s quite a ride.
National Grid shares are up 23% in the past five years, mind. But they’re still lower than before the pandemic, and I just don’t think that comes close to the real value. Let me tell you why.
Top income stock
I rate this as one of the UK’s best income stocks. It might be a bit overshadowed right now, though.
While we have some FTSE 100 firms with dividend yields of 8%, 9%, and even 10% and more, National Grid’s 5.7% might not look too exciting.
But by long-term standards, I think that’s pretty good.
And in another 10 years, will today’s big dividend hitters still offer the same high yields?
We only need to look back a couple of years, when the top payouts were coming from the likes of Rio Tinto. That cycle is on the way down now.
Visibility
But I expect National Grid to keep lifting its annual cash gradually, as it’s done for many years.
It’s all about having a monopoly on the energy supply network in the UK, and that brings clear earnings visibility. Possibly the best in the FTSE 100, in fact.
The company also has fairly clear long-term expenditure plans. And that means it can keep paying a large portion of its earnings as dividends.
Regulated business
There is a downside to that, though. National Grid is in a regulated industry, which to some extent governs what it can charge and what it has to reinvest in its national resources.
Then, the likely long-term decline of the gas business could hit confidence in future dividends.
But the company is well into the shift to electricity distribution. And however energy is generated in the future, it has to be transmitted to users… and for that I see only one game in town.
Oh, and broker forecasts are bullish over the National Grid dividend, at least for the next few years.
Will I buy?
The question is, will I buy National Grid shares? And why haven’t I bought any already? Two questions, then.
I’ve come close a good few times. But each time, I’ve found something I like better. Not the top yields every year, but stocks that I think are undervalued and pay decent yields.
I’m thinking stocks like Lloyds Banking Group and Barclays, on similar yields to National Grid.
I do like banks and other financial stocks right now, which I think are among the best value FTSE 100 sectors. When they’re cheap, buy big, right?
Diversification
Still, family members own National Grid shares. Part of me wants to buy more bank and insurance. But another part knows I need more diversification.
National Grid might just make it on to my New Year shopping list.
