Down 17%, is National Grid’s share price a FTSE 100 bargain?

National Grid’s share price has taken a battering following a multi-billion-pound rights issue and dividend rebasement. Is it now too cheap to ignore?

| 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.

Young Asian man drinking coffee at home and looking at his phone

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

Upgrading the UK’s power grid to meet the green energy revolution will be eye-poppingly expensive. National Grid (LSE:NG.) reminded the market of this last month: its £7bn right issue sent its share price through the floor.

Created with Highcharts 11.4.3National Grid Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

At 880.6p per share, the FTSE 100 company is now down 17% since the start of 2024. But I can’t help but think that it might now be too cheap to miss.

Should you invest £1,000 in National Grid right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if National Grid made the list?

See the 6 stocks

Based on predicted earnings and dividends, it seems to offer attractive value to me.

Big yields

Utilities stocks like this are chiefly popular because of the large and growing dividends they tend to offer. National Grid is no exception: it has increased shareholder payouts in 13 of the past 15 years.

However, its proud run is poised to come to an end as it rebases the dividend this year. Cash rewards per share will fall following the company’s decision to issue those new shares to fund its green growth plans.

Yet this isn’t a catastrophe for income chasers. As the table below shows, the dividend yield on National Grid shares still smashes the FTSE 100 average of 3.6% for each of the next three years.

You’ll also notice that City analysts expect the dividend to start rising again from next year.

Financial year*Dividend per shareForward dividend yield
 2024 58.52p –
 2025 48.89p 5.6%
 2026 49.95p 5.7%
 2027 50.84p 5.8%
* National Grid’s financial year ends on 31 March.

An attractive P/E ratio

The power transmission business offers solid value when it comes to dividends, then. But how does it stack up in relation to dividend forecasts?

Today, National Grid’s share price trades on a forward price-to-earnings (P/E) ratio of 12.7 times. This doesn’t look too impressive at first glance: the Footsie average sits below this at around 11 times.

But there’s a couple of things to consider here. During tough economic times like this, utilities companies tend to have more stable earnings than the broader market. And investors are prepared to pay a premium for this.

National Grid is needed to keep the lights switched on at all points of the economic cycle. It also operates in a regulated industry, which in turn provides solid earnings visibility. And finally, the company has a monopoly on what it does, providing profits with extra protection.

Based on all of this, I think a strong case can be made that it still offers value.

The final thing to consider is how its P/E ratio looks from an historical perspective. Over the past five years, the multiple has averaged 18.9 times, suggesting that National Grid shares actually look pretty cheap.

Here’s what I’d do now

As I say, investing for the clean energy revolution won’t be cheap. And National Grid investors may be hit with rights issues and rebased dividends further down the line.

Yet, on balance, I believe the potential benefits of owning the utilities business offset the risks. Earnings could soar as it gears up for the growth of renewable energy, underpinning long-term growth in the dividend. At current prices I think it could be a top bargain.

Should you buy National Grid shares today?

Before you decide, please take a moment to review this first.

Because my colleague Mark Rogers – The Motley Fool UK’s Director of Investing – has released this special report.

It’s called ‘5 Stocks for Trying to Build Wealth After 50’.

And it’s yours, free.

Of course, the decade ahead looks hazardous. What with inflation recently hitting 40-year highs, a ‘cost of living crisis’ and threat of a new Cold War, knowing where to invest has never been trickier.

And yet, despite the UK stock market recently hitting a new all-time high, Mark and his team think many shares still trade at a substantial discount, offering savvy investors plenty of potential opportunities to strike.

That’s why now could be an ideal time to secure this valuable investment research.

Mark’s ‘Foolish’ analysts have scoured the markets low and high.

This special report reveals 5 of his favourite long-term ‘Buys’.

Please, don’t make any big decisions before seeing them.

Claim your free copy now

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.

Royston Wild 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.

Pound coins for sale — 51 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

More on Investing Articles

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Up 50%? The Aston Martin share price forecast is mind-blowing! 

If analysts are right, the Aston Aston Martin share price could absolutely rocket in the year ahead. Harvey Jones says…

Read more »

Investing Articles

As the S&P 500 drops, here are 2 Stocks and Shares ISA holdings I’m watching

Our writer has different views on how President Trump's tariffs might affect these two US holdings in his Stocks and…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

£10,000 invested in Tesla stock at Christmas is now worth…

Tesla stock has been one of best-performing investments of the past decade. But things haven't gone to plan for investors…

Read more »

Investing Articles

Up 279% in 5 years, could Meta stock keep soaring?

Meta stock has more than tripled in five years. This writer sees lots to like about the business but also…

Read more »

Pink 3D image of the numbers '2025' growing in size
Investing Articles

25% total return in a year? Is now the perfect time to buy BP shares?

BP shares are on the front line of today's global economic and political uncertainty but analysts think they can still…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

With Cash ISA changes coming, could now be the time to consider buying shares?

Changes to the Cash ISA could lead to greater investment in the stock market. This could be a good thing…

Read more »

Investing Articles

These FTSE 100 dividend shares just got cheaper, thanks to President Trump!

Investors buying dividend shares can lock in bigger long-term yields when share prices take a tumble. These two just did…

Read more »