Can investors trust the National Grid dividend in 2025?

National Grid surprised investors this year with a dividend cut to help fund upgrades. Is this FTSE 100 stalwart still a safe choice for income?

| 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.

artificial intelligence investing algorithms

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.

When National Grid (LSE: NG) announced a 20% dividend cut alongside a £7bn share issue in May, I was taken by surprise. The utility group hadn’t cut its dividend for more than 20 years. The reliable payout was the stock’s main investment appeal.

In my view, shareholders have been relatively forgiving. National Grid’s share price seems likely to end the year around 5% lower, having recovered from May’s lows.

As a result, this FTSE 100 stalwart still offers a tempting 5% forecast dividend yield, even allowing for the reduced payout planned for this year.

Should you invest £1,000 in Babcock 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 Babcock made the list?

See the 6 stocks

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

As the year draws to a close, I’ve been taking another look at this situation. Can income investors like me still trust National Grid to provide reliable payouts?

A £35bn spending spree!

As a regulated utility, National Grid has to publish five-year spending plans that have been agreed with regulator Ofgem. On 18 December, the company released details of its plans for the period from April 2026 to March 2031.

National Grid needs to upgrade its network to support growing electricity demand in the UK and the rapid growth in renewable energy generation.

The numbers involved are fairly jaw-dropping. CEO John Pettigrew plans to spend £35bn over this five-year period. This will include 3,500km of overhead line upgrades, 17 new onshore transmission projects and connecting 35GW of new generation and storage.

Who will pay for all of this?

National Grid generates income through regulated fees it charges to the energy suppliers that use its network – companies like British Gas. In addition, the utility’s also able to borrow against the value of its network.

Net debt‘s expected to be around £42bn at the end of March 2025. That’s in line with recent years. But it’s still a hefty amount that carried interest costs of around £1.4bn last year – nearly a third of the group’s operating profit.

Brokers expect National Grid’s net debt to increase to nearly £53bn by March 2027 to help fund its spending plans. In theory, this borrowing will be supported by the increased value of its network, which should generate additional income in the future.

Will the dividend be safe?

With such big spending plans, will National Grid’s reduced dividend be safe? Broker forecasts suggest that the dividend will return to growth of around 2% a year from next year, rising from 46.4p per share for 24/25 to 48.6p in 26/27.

That’s equivalent to a yield of 5% for the current year, rising to 5.3% in 26/27. That seems promising to me. Slow-but-steady growth’s what I’d hope for here.

My only concern is that my analysis suggests the company may need to use borrowed cash to help fund the dividend for several years while spending remains high.

This may be sustainable, temporarily. But the financial problems being faced by some UK water utilities have made me more cautious about this sector. I wonder if spending requirements could stay high for longer than expected.

On balance, I think National Grid’s dividend will be safe in 2025 and probably beyond. Yet while I don’t believe this dividend’s quite as attractive as it used to be, for someone who wants a FTSE 350 utility stock, I think it’s worth considering

But this isn’t the only opportunity that’s caught my attention this week. Here are:

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

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.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended National Grid Plc. 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

16% lower in 10 days, does Prudential’s share price look a compelling bargain to me?

Prudential’s share price is down a lot from its one-year traded high, which suggests a bargain to be had. I…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Down 17% in a week! This FTSE 100 growth stock is one I’m watching

Over the last five years, Informa has shown itself to be one of the UK’s most resilient growth stocks. So…

Read more »

Investing Articles

2 defensive US growth stocks to consider even as the S&P 500 slides

With trade tariffs causing global market mayhem, risk-averse investors may want to consider shifting into defensive US growth stocks.

Read more »

Investing Articles

As Trump’s tariffs sink the FTSE 100, I’m following Warren Buffett’s advice and shopping for bargains

With the FTSE 100 now officially in a correction period, Andrew Mackie's not sitting on cash waiting to see where…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

2 reasons why this stock market crash isn’t a repeat of 2020

When the stock market crashed during the Covid-19 pandemic, the recovery was rapid and spectacular. Could the same thing happen…

Read more »

Investing Articles

Car-mageddon! The Aston Martin share price has tanked 30% in a month

Our writer looks at the performance of the Aston Martin share price over the past few weeks and considers whether…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing For Beginners

I was right about the UK stock impact from the tariff news. Here’s what I think happens next

Jon Smith explains why he warned about the impact of the tariffs on UK stocks and why more short-term pain…

Read more »

Investing Articles

Looking for penny shares? Here’s one I think looks like a terrific bargain to consider!

I think this penny share -- which has almost doubled in value over the last year -- is one of…

Read more »