Is National Grid too boring for my Stocks and Shares ISA? 

Harvey Jones is looking for a solid FTSE 100 dividend growth stock for this year’s Stocks and Shares ISA limit. Is this one a little too dull?

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I consider an awful lot of things when deciding which companies to pop inside my Stocks and Shares ISA.

The first and most obvious is whether it’s a solid business with attractive products and services, growing revenues, loyal customers and a defensive ‘moat’ against rivals.

I might then look at fundamentals, such as its price-to-earnings ratio, yield, margins, return on capital employed, and so on.

I want a little action

It also needs to slot nicely alongside my existing holdings. I’d be daft to buy, say, four FTSE 100 banks, while completely ignoring pharmaceuticals. So plenty to think about, and here’s something else. I want a little excitement too.

As a writer for the Fool, I don’t just want my portfolio to grow in value and fund my retirement. I want it to entertain me as well. I like making a judgement on companies, then watching to see how they perform in practice. It’s how I learn to be a better investor. 

I’m not a crazy trader. Typically, I buy solid FTSE 100 blue-chips with the aim of holding them for years and years, while quietly reinvesting my dividends to pick up more stock.

Utility giant National Grid (LSE: NG) fits that description nicely. It’s not totally risk-free, but it’s about a solid as a stock can be. As a monopoly, its defensive moat is dauntingly high. And as a regulated utility, its earnings are pretty reliable.

Whenever I check, the stock is yielding around 5.5%. Right now, the forecast yield is 5.53% for 2024, rising slightly to 5.69% for 2025.

National Grid’s valuation is pretty predictable too. Typically, it trades around fair value, because investors know what they can expect. The forecast price-to-earnings (P/E) ratio is 14.3 times earnings for 2024, and 13.5 times for 2025. So why have I never bought the stock? It bores me. I’d like a little more potential action. Am I being shallow here?

There are some risks

The National Grid share price isn’t wholly predictable. It has actually fallen 8.19% over the last year. Over five years, it has climbed 25.34%. The shares always seem to be up 25% over five years, or is that just me?

Throw in that yield, and the total return over five years is heading towards 60%. It’s not Nvidia. But it’s not so boring either.

Here’s something else that isn’t dull. National Grid’s net debt is forecast to hit £44.59bn this year. That’s more than double its forecast sales of £21.54bn. That debt pile is expected to climb to £48.85bn in 2025, while sales dip to £21.19bn. If this was any other company than a boring utility, that would worry me.

National Grid has to invest heavily in the energy network, and that eats cash. The dividend is only covered 1.2 times, and while utilities can get away with less cover, it isn’t as solid as I’d like. The stock isn’t as boring as I thought.

In fact, it worries me a little. I think the risk/reward ratio is slightly out of kilter and will look elsewhere for my next Stocks and Shares ISA purchase .

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.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Nvidia. 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.

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