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 Rightmove 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 Rightmove 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.

Should you buy Rightmove now?

Don’t make any big decisions yet.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.

And he believes they could bring spectacular returns over the next decade.

Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows...

When such enormous changes hit a big industry, informed investors can potentially get rich.

So, with his new report, Mark’s aiming to put more investors in this enviable position.

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

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

This FTSE AIM stock has £2.3bn in net cash, and a market cap of £2.4bn!

I love this FTSE AIM stock, but it really hasn’t delivered for me yet. The stock trades with crazily low…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

Down 15% in a week! Are these 5 FTSE 100 fallers screaming buys as markets plunge?

Five of Harvey Jones's favourite FTSE 100 stocks all have the same thing in common – they've fallen around 15%…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

2 stocks that have been crushed and now offer a ton of value

Edward Sheldon has been scanning the market for stocks that offer value after the sell-off. Here are two shares he…

Read more »

Light trails from traffic moving down The Mound in central Edinburgh, Scotland during December
Investing Articles

£10,000 invested in Aston Martin shares at Christmas is now worth…

Aston Martin shares have fallen from above £10 in early 2020 to pennies today. Is this the perfect time for…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Investing Articles

Up 5% in the last crazy week! Are these 2 income stocks the ultimate FTSE defensive plays?

Harvey Jones picks out two FTSE 100 dividend income stocks that have actually climbed while stock markets are heading in…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

2 beaten-down UK shares that now look really cheap

Looking for cheap shares to consider for the long term? These two British stocks offer a lot of value right…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

As stocks tank, is this a rare chance for ISA investors to get rich?

Shares have collapsed globally and valuations are becoming, on paper at least, a lot more attractive. Dr James Fox explores…

Read more »

Investing Articles

2 strong FTSE 100 dividend shares to consider as recessionary risks increase

Looking for secure passive income stocks to consider buying as thumping trade tariffs loom? Here are two FTSE 100 dividend…

Read more »