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:
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.

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%.

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, 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.

More on Dividend Shares

Investing Articles

2 FTSE 100 shares with blockbuster yields investors should consider buying

Our writer has noticed that these FTSE 100 shares offer mammoth dividend yields, and reckons investors should take a closer…

Read more »

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

Down 36% and yielding 7.8%, is this FTSE 250 share a bargain?

Christopher Ruane looks at a FTSE 250 share with a sizeable dividend yield and a recent record of dividend growth.…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

Is this 7%-yielding FTSE 100 dividend star still a bargain after a 34% price rise?

Despite its recent price rise, this FTSE 100 high-yield heavyweight still looks very undervalued to me, supported by strong earnings…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

£11,000 of Legal & General shares could make me £14,583 a year in passive income!

A high passive income can be generated from a much smaller investment in Legal & General shares if the dividends…

Read more »

Investing Articles

A 9.6% yield but down 14%! Should I consider this FTSE gem for my dividend portfolio?

There are several things to consider when looking for FTSE shares with dividend potential. Here, our writer outlines his evaluation…

Read more »

Young Asian man shopping in a supermarket
Investing Articles

I’d shun Lloyds Banking Group and consider this stock for passive income instead

This company's dividend record knocks spots off Lloyds Banking Group's, and it looks like decent value now with a yield…

Read more »

Investing Articles

Is this ‘secret weapon’ a multi-billion pound reason to buy Lloyds shares?

Dr James Fox explains how Lloyds shares could rise even higher as the bank's 'strategic hedge' is likely to boost…

Read more »

Investing Articles

What’s the minimum I need to invest every month to earn a meaningful passive income?

When looking to secure a stream of passive income it's important to be realistic. Our writer investigates a strategy to…

Read more »