Up 25% from their 2024 lows, is it too late to buy National Grid shares?

National Grid shares have rallied hard in the last few months. Can they still provide good returns after this jump in the share price?

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National Grid (LSE: NG.) shares have been performing well. Since the stock’s rights issue announcement lows in late May, it’s climbed about 25%.

Is it too late to consider buying them after this significant share price increase? Let’s discuss.

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Is now a good time to buy?

To answer this question, I’m going to look at three key factors – the valuation, the dividend yield, and brokers’ share price targets. Together, these should provide some clues into the stock’s appeal at current levels.

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Starting with the valuation, the forward-looking price-to-earnings (P/E) ratio here’s currently 14.7, as City analysts are forecasting earnings per share (the ‘E’ in the P/E) of 71p this financial year (ending 31 March 2025).

That’s not a bargain valuation. But it’s also not particularly expensive. Assuming the electricity and gas company can achieve the growth it’s aiming for (it’s targeting earnings growth of 6-8% a year after this financial year), I think the stock should be capable of providing decent returns in the long run from that valuation.

Attractive dividend yield

Now, one major component of shareholder returns here is the dividend. And it still looks quite attractive, even after the 25% jump in the share price.

My personal dividend forecast for this financial year is 46.7p per share (which is pretty close to the consensus analyst forecast of 46.8p). At today’s share price of 1,036p, that equates to a yield of 4.5%, which is decent.

Brokers’ share price targets

Finally, looking at brokers’ targets for the stock, it seems many expect it to continue climbing.

According to my data provider, the average price target’s currently 1,125p. That’s about 9% above the current share price. If the stock was to hit that level over the next 12 months, investors could be looking at a total return of 13.5% with dividends. That’s a solid return.

It’s worth noting that some brokers have higher price targets for the stock. One example here is JP Morgan. Recently, it slapped a 1,200p ‘base-case’ target on the stock (its ‘bull-case’ target’s even higher). That’s about 16% above the current share price.

The risks

Of course, investors shouldn’t rely on any of these metrics. The earnings forecast I mentioned above could be off the mark as could the dividend forecast. As for the brokers’ share price targets, these are often wrong so they should be taken with a grain of salt.

One issue to be aware of with National Grid is that the company’s currently undergoing a massive UK infrastructure upgrade (aka its ‘Great Grid Upgrade’). Any setbacks here in the coming years could potentially threaten earnings, dividends, and the share price.

All things taken into account however, I don’t think it’s too late to consider buying this stock for a portfolio. The valuation appears to be reasonable, the yield’s attractive, and brokers see the potential for further gains.

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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.

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