Here’s the dividend forecast for National Grid shares through to 2027!

National Grid’s share price tanked following news of an upcoming dividend cut. But is it still one of the FTSE 100’s best income shares?

| 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 Black man sat in front of laptop while wearing headphones

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.

Utilities business National Grid (LSE:NG.) has long been a target for investors seeking reliable and high-paying dividends. Like other stocks in its sector, the FTSE 100 company’s defensive operations and steady cash flows have made it a great passive income generator.

However, the business has shocked the market more recently by announcing a rare dividend cut for the current financial year (to March 2025). Unsurprisingly this caused its share price to collapse as income investors piled out.

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

In better news, City analysts think cash rewards will begin rising again straight after this rebasement. Their forecasts are shown in the following table:

Should you invest £1,000 in Rolls-Royce 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 Rolls-Royce made the list?

See the 6 stocks

YearDividend per shareDividend movementDividend yield
202545.30p-23%4.5%
202649.55p+9%5%
202750.60p+2%5.1%

As a consequence, the dividend yield on National Grid shares — which already stands above the 3.5% FTSE 100 average — eventually breaks above 5%.

However, dividends are never guaranteed, and broker estimates can often miss their mark. Indeed, few expected the power grid operator to slash payouts heavily in the current year.

So how realistic are National Grid’s dividend forecasts? And should I buy the stock for my portfolio?

Debt issues

First, let’s get the easiest task ticked off: checking National Grid’s dividend cover.

Through the next three years, predicted payouts are covered between 1.5 times and 1.6 times by projected earnings. As an investor, I’m seeking coverage of 2 times and above for a margin of error.

Having said that, dividend coverage for utilities isn’t as critical for dividend chasers as it is with cyclical shares. This is because earnings and cash flows are quite predictable for companies like this.

In the case of National Grid, I’m more interested in the condition of the balance sheet. A company that has zero financial borrowings, or which is able to comfortably manage its debt payments, is in much stronger shape to pay a sustainable and growing dividend.

Unfortunately, on this front National Grid is still a concern to me. Keeping Britain’s lights on is an expensive business, as is the company’s ambitious plans to grow its asset base.

As a result, net debt rose more than £2.5bn in the last financial year, to £43.6bn. And City brokers expect it to rise further over the next three years. They predict it to top £53.9bn by financial 2027.

Going green

National Grid has cut dividends for this year following its decision to launch a £6.8bn rights issue. The cash will form part of a £60bn investment over the next five years to decarbonise the UK’s energy grid.

Investing in the green economy could prove very lucrative for National Grid investors. It will see the business grow its asset base around 10% each year, which could in turn drive the share price higher and result in more large and growing dividends.

However, investors should also be mindful of its potential impact on dividends in the near term. The company’s huge debts give it little financial flexibility. And I wouldn’t rule out any further share placings down the line to fund its ambitious growth plans.

I’d consider buying National Grid shares following this year’s price plunge. I think they could prove a great way to profit from the growing green economy. But I’d also prepare myself for potential dividend disappointment in the near term.

But here’s another bargain investment that looks absurdly dirt-cheap:

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p 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 10%, 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

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.

More on Investing Articles

Investing Articles

Prediction: 12 months from now, £5,000 invested in Tesla stock could be worth…

Tesla stock has endured a miserable year so far, falling by 29%. Muhammad Cheema takes a look at how it…

Read more »

Investing Articles

See what £10,000 invested in Tesla shares at their mid-December peak is worth today 

As the world absorbs the full scale of Donald Trump's tariffs, Tesla shares are reeling. Investors who bought the stock…

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 »

Investing Articles

US stock market rout: an unmissable opportunity for investors?

His tech-heavy portfolio has been smashed by Trump’s tariffs. However, Dr James Fox believes there could be some opportunities in…

Read more »

Investing Articles

After a 13% ‘Trump tariff’ fall, is the Barclays share price too cheap to miss?

Does the Barclays share price fall mean we should all panic and run screaming from the stock market? Nah, of…

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 »

Investing Articles

2 things to remember when stock markets are turbulent

US trade policy has rattled the stock markets in New York, London and elsewhere. Our writer outlines a couple of…

Read more »