The National Grid (LSE: NG) share price is seen as one of the steadiest on the entire FTSE 100.
Plenty of stocks can provide thrills, but the transmissions giant isn’t usually one of them. It’s there to deliver dependable dividend income, with a dash of growth over time.
Many investors will have been surprised to see the share price fall 5% in May, in what was otherwise a positive month for UK blue-chips. Of 100 stocks, 82 made gains. National Grid was one of just 18 to fall. The drop wasn’t dramatic, but it stood out.
Dividend under pressure
Full-year results, published on 15 May, showed some solid numbers. Statutory operating profit rose 10% to £4.93bn. The underlying figure climbed 12% to £5.36bn. Meanwhile, underlying profit before tax increased 20% to £4.07bn.
The disappointment lies in the dividend. National Grid paid 46.72p per share in 2024, up 3% from the rebased level. But investors will recall getting 58.52p the year before. That’s effectively a 20% cut, and it hasn’t gone unnoticed.
For years, National Grid offered a yield of more than 5.5%. That’s now fallen to 4.5%. Not a disaster, but less of a draw for income hunters. That said, May’s dip could provide a slightly better entry point for those looking to lock in today’s yield.
Valuation’s crept up
A bigger concern for me is how ambitious National Grid’s investment plan looks. It’s aiming to pour £60bn into its UK and US operations over the next five years. That includes modernising the grid and driving decarbonisation.
It’s a vital job, but not a cheap one. Last year’s rights issue spooked investors, and I don’t think anyone can rule out the possibility of another.
While the shares recovered quickly after that event, it does suggest there could be further bumps in the road.
The stock isn’t looking as cheap as it once did. For years, it traded on a price-to-earnings ratio of around 15, more or less in line with the FTSE 100 average. With the share price up 20% in a year, that’s now climbed to 18.5.
Some investors may feel they’re paying a little more for a little less. Especially when they take into account that re-based yield.
Market sentiment cooling
Broker RBC Capital Markets seemed to reflect that mood on 28 May. It downgraded National Grid from Outperform to Sector Perform, saying much of its strong performance had already been priced in. RBD analysts still believe in the long-term plan, but are struggling to find further value at the current price.
They lifted their price target slightly, from 1,150p to 1,175p, but said there’s unlikely to be a fresh trigger for growth until after the 2026 financial year.
Not everyone is as cautious. Of the 15 analysts offering one-year ratings, eight name National Grid a Strong Buy, and only one says Sell.
The median share price target is 1,180p, which would mark a 13.5% gain from today. Add the yield, and that’s a total return of around 18%.
Investors might consider buying at this level, especially if they’re looking for long-term stability. Personally, I won’t. The green transition is a massive task, and National Grid has its work cut out.
