Here’s my 2024/25 dividend forecast for National Grid shares after their recent 17% plunge

National Grid shares could still be a good choice for income, even after the recent seven-for-24 rights issue, says Edward Sheldon.

| 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.

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop

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.

National Grid (LSE: NG.) shares have long been a popular income investment. In the past, they’ve often sported an attractive dividend yield.

However recently, the company announced a £7bn rights issue to fund its future investment plans. So what does this mean for dividend investors?

The rights issue explained

With the rights issue, existing shareholders were able to buy seven shares for every 24 they owned. They were also able to buy these new shares at a bargain-basement price of 645p.

Should you invest £1,000 in Glencore Plc 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 Glencore Plc made the list?

See the 6 stocks

As a result of this issue (which was fully underwritten, meaning that all the new shares were snapped up), the company’s share count increased by roughly 29%. But this also means that earnings and dividends per share are going to fall.

Dividend forecast

The good news is that for the 2023/24 financial year (ended 31 March) National Grid hiked its dividend payout to 58.52p per share to soften the blow for investors.

And looking ahead, the company said it will aim to increase the 2024/25 dividend by UK CPIH inflation following the rebase, after taking account of the new shares issued following the rights issue.

So if we assume that CPIH inflation is around 3%, the dividend payment for this financial year (ending 31 March 2025) could be somewhere around 46.7p per share (the calculation here is 58.52p divided by 1.29 and then multiplied by 1.03).

At today’s share price of 874p, that dividend forecast translates to a yield of around 5.3%.

Worth buying for income?

Now that’s obviously not the highest yield out there right now. Within the FTSE 350, there are lots of stocks with yields well above that.

However, if I was seeking income, I’d actually take a 5.3% yield from National Grid over a lot of the super-high yields in the market today.

One reason I’d go with this stock is that it’s usually pretty stable. Obviously, the share price has been volatile recently due to the rights issue. However, excluding this event, it hasn’t exhibited much volatility in recent years.

This is illustrated by the stock’s beta of 0.35. This metric indicates that over the last five years, for every 10% drop in the UK market, National Grid shares have only fallen around 3.5%.

By comparison, Legal & General has a beta of around 1.7. So for every 10% drop in the market, it tends to fall about 17%.

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

Another reason I’d go with the utilities stock is that after this financial year, the company is expecting earnings per share growth of around 6-8% on an annualised basis for around four years on the back of strong asset growth.

Growth in earnings per share tends to drive a company’s share price higher. So if National Grid can achieve this, investors could be in for some attractive total returns (gains plus dividends).

Of course, there’s no guarantee this earnings growth will be achieved. Costs related to its energy infrastructure buildout could be higher than expected, reducing profits.

All things considered though, I think the shares offer an attractive risk/reward proposition today.

Should you invest £1,000 in Glencore Plc 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 Glencore Plc made the list?

See the 6 stocks

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.

Edward Sheldon 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 Dividend Shares

Stack of British pound coins falling on list of share prices
Investing Articles

Why hasn’t its 9.9% yield boosted the Phoenix share price?

Phoenix Group has a dividend close to double digits, but saw a weak share price performance in recent years. Christopher…

Read more »

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

With average 10% yields, these mid-cap FTSE shares could supercharge a passive income portfolio

Some of the best passive income gems can be found on the UK's smaller indexes like the FTSE 250 and…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Down 25% since January, this resilient dividend stock’s catching my eye

Maintaining the UK’s rail, water, and energy infrastructure isn’t the most exciting business. But it has made this a solid…

Read more »

Calendar showing the date of 5th April on desk in a house
Investing Articles

Here’s how a £20k ISA could produce £1,580 of passive income in the next year

A Stocks and Shares ISA stuffed with dividend shares can be a lucrative source of passive income. Christopher Ruane explains…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Dividend Shares

2 ‘safe’ LSE dividend stocks to consider as global markets sell off

As global markets experience high levels of volatility due to economic uncertainty, investors are piling into these ‘safe-haven’ dividend stocks.

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

2 investment trusts to consider for a Stocks and Shares ISA

These two investment trusts have a different focus -- but our writer sees both as worth considering, one more for…

Read more »

Investing Articles

Deutsche Bank reiterates Buy rating on 9.6% yielding FTSE 250 stock that was “most shorted in UK”

Our writer investigates why a major broker remains optimistic about a FTSE 250 stock that was once the most shorted…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Dividend investors! Here’s what Warren Buffett says builds wealth in the stock market

Reinvesting dividends at yields of 8% or higher looks like a good way of building wealth. But Warren Buffett has…

Read more »