The National Grid (LSE: NG.) share price took a nosedive this summer, and that shook confidence quite badly.
The key thing is, the energy network operator demolished some long-standing assumptions overnight.
Those assumptions were that it would keep on doing the same thing, year in and year out. That would generate steady earnings, with a clear outlook. And the net result would be a stream of dividends filling up shareholders’ pockets.
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But that came crashing down on 23 May, and investors dumped the stock. I think that was a big mistake.
New start
It’s pretty much sunk in by now, but National Grid shocked us with a new £7bn equity issue on full-year results day.
And horror of horrors, the dividend was rebased. Only by a little, but for many of us that would have been unthinkable.
Yet now it’s happened and I’ve had more time to think through it, I believe we were wrong to be surprised. I don’t know about others out there, but with hindsight I know I was a bit naive.
The energy business is in the middle of a big shake-up, we can’t have missed that. We’re going to be seeing ever more renewable energy sources. And that brings growing demand for infrastructure, in terms of both capacity and technology.
Of course National Grid needs to invest big, not just to keep up, but to lead. And that will cost money.
The only real puzzle I’m left with is… why didn’t I see it coming?
Added risk
Now our calm complacency has been shattered, what’s to stop it happening again? Well, I think we have to see that as a possibility.
If I buy National Grid shares, I’ll factor the chances of future new issues into my decision. And the risk of further dividend dilution in the future.
The other thing that I think some of us might have overlooked is National Grid’s debt. Net debt at the end of the 2023-24 year stood at £43.6bn.
That’s probably the thing that would weigh most against buying the stock in my mind right now.
Then again, debt funding can be a successful finance approach. Especially when it’s a company with a stable long-term outlook for its business.
So maybe I shouldn’t let that put me off too much?
The elephant
Let’s get back to the one thing that most investors have bought National Grid shares for. That’s the dividend.
Even after the turmoil of the past few months, we’re still looking at a forecast dividend yield of 5.7% for the current year. And erm, isn’t that super attractive?
There are bigger yields out there, sure. But I think they mostly come with more risk. And forecasts show National Grid payouts getting back to steady growth again after the rebasement.
Despite this new wake-up call, I still think National Grid could be one of the best FTSE 100 stocks for long-term investors to consider. Even now.
