I’d buy 4,000 National Grid shares to target £2,000 of yearly passive income

National Grid is a favourite with passive income investors. It still looks good to me, even if the latest share issue brought some dilution.

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Image source: National Grid plc

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I want to build up some passive income for my retirement years, and I’ve looked at a number of different ways to do it.

But I keep coming back to UK dividend stocks, for one main reason. I don’t have to do any work. I invest a bit of cash, and the company does all the work to earn my profits. Lovely.

Also, I think UK stocks are among the best in the world for dividends.

Shock at National Grid

I don’t know why, but I’ve never bought National Grid (LSE: NG.), even though I see it as one of the UK’s best for long-term cash.

Maybe it’s because, every time I have cash to invest, I see something I like better. I’ve found banks and other financials hard to resist in the past decade.

Still, after National Grid’s recent surprise news, I’ve been looking at the stock again. Thanks to the effects of a new share issue, the price is down 16% so far in 2024.

National Grid weakness

The firm announced the new issue on 23 May, to raise £7bn in new funding. It needs the cash for its planned capital expenditure in the coming years, with the energy distribution business in a time of change.

The successful takeup does look like good news. But then, the firm did offer the new shares to existing shareholders at a serious knockdown price of 645p. That makes me think its confidence might have been a bit weak.

Still, it’s done and dusted now. And I think the whole thing makes National Grid look like a better long-term dividend buy.

Future income

There’s a range of forecasts out there now, and it looks like some have yet to take in the dilutive effect of the new share issue.

The board says the total dividend will be maintained. And it plans to grow it in line with Consumer Prices Index inflation. But the per-share cash has to drop this year.

Still, forecasts (at least the ones that seem to have included the dilution) have a 5.7% dividend yield down for 2025, and then rising.

£2,000 a year

With that return, I’d need to have a bit over £35,000 invested in National Grid to get my £2,000 per year in passive income. That’s about 4,000 shares.

I don’t have that much cash spare, but I could get there. Just £200 per month, and I could reach my goal in 11 years.

Will I finally buy National Grid shares? They’re on my wish list, for sure. But if I buy, I have to remember there’s a risk of the same kind of thing happening again in the future.

Spread the risk

That comes with buying shares in a regulated company, one that needs a lot of cash every year to maintain and develop its infrastructure.

But, as part of a diversified Stocks and Shares ISA, there’s a good chance it’ll be my next buy.

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.

Alan Oscroft 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.

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