National Grid (LSE: NG) shares are seen as among the steadiest on the FTSE 100. The energy transmission giant operates as an effective monopoly, with regulated earnings and a solid dividend track record. So how has it held up in the latest bout of market chaos?
War in Iran has triggered sharp volatility across global markets, and the FTSE 100 is no exception. The index ended February just shy of 11,000 for the first time ever. Yesterday it slipped into correction territory, defined as a fall of more than 10%, and trading below 10,000. Then it rocketed back up, after US president Donald Trump paused planned strikes on power plants.
It was dizzying to watch, and the aftershocks are likely to continue. So how did National Grid fare?
Stock market volatility
One point first. Personally, and this is a minority view, I’m not convinced National Grid is as steady as many claim. It faces a huge challenge upgrading the UK’s electricity network for the green transition, with plans to invest at least £60bn over the next five years.
Large infrastructure projects in the UK rarely run smoothly. Delays are common and costs have a habit of rising well beyond initial estimates. That’s my worry. Investors got a reminder of the risks in May 2024, when the shares plunged 10% in a day after a £7bn rights issue. That increased the share count by almost 30%, diluting existing holdings and spreading future earnings and dividends more thinly.
I felt vindicated, but not for long. National Grid issued heavily discounted new shares and investors snapped them up. I remain cautious even if nobody else is. Investors should take their own view. So back to the question. Has National Grid provided shelter in this latest storm?
As of yesterday, the shares were down just over 10% in a week. While not quite an oasis of calm, it’s been a lot less stormy than many. More importantly, long-term performance is strong. National Grid shares are still up 24% over 12 months and 60% over five years, with dividends on top. Loyal investors won’t be complaining at that. So does that change my view?
Higher valuation than before
National Grid plays a critical role in UK infrastructure and is unlikely to be allowed to fail. There was positive news on 2 March, when the group upgraded its outlook after agreeing a new regulatory framework. It’s now guiding for underlying earnings per share growth of 13% to 15% by 2027.
It’s obviously worth considering but I’m not convinced now is a good time to buy. For years, National Grid traded on a price-to-earnings (P/E) ratio of around 15 and offered a yield above 5%. Today, the valuation looks more stretched. The P/E ratio has climbed to 22.2, while the trailing yield has slipped to 3.8%. Maybe I’m just being picky.
But I can still see far more compelling growth and opportunities. Plenty of FTSE 100 stocks now trade at lower valuations and offer higher yields than National Grid. I’ll target them instead…
