The Surprising Buy Case For National Grid plc

national gridToday I am looking at why rising investment in the US is ready to underpin National Grid’s (LSE: NG) (NYSE: NGG.US) long-term growth story.

US expansion set to underpin earnings growth

Escalating costs attributed to National Grid’s expansion plans in North America has been a bugbear in recent times. Although essential in order to bolster its IT infrastructure and other back-office operations in the country, additional costs associated with this tallied up at £90m during March-September and continue to rise.

But on the whole, National Grid’s drive into the US promises to thrust earnings skywards in my opinion. Indeed, the company reiterated in last month’s interims that it “continues to make progress on developing new transmission and generation infrastructure that should deliver attractive medium to long term growth.”

The electricity firm commented that “investment in process development and infrastructure” was a crucial factor in mitigating the effect of terrible weather conditions on its networks in the US in recent months. This helped drive customer disruption and expenses to these natural occurrences significantly lower than those of the previous two years.

And National Grid plans to keep capital expenditure levels rolling in both the UK and US in order to facilitate future growth, and confirmed its intention to spend £3.5bn this year alone to build its regulated asset base by around 6% per year.

City analysts expect National Grid to punch a 7% earnings slide, to 52p per share, for the 12 months concluding March 2014 due to the impact of enhancing its asset base.

But earnings are expected to rebound 5% and 4% in 2015 and 2016 correspondingly, to 54.7p and 57.2p. And I fully expect heavy investment in the UK and US set to underpin growth well into the long term.

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In addition to National Grid's promising earnings potential, the company is also expected to keep on churning out above-average dividends well into the future. Indeed, National Grid is expected to lift the payout 3.8% in 2014 and 2.8% 2015 respectively, to 42.4p and 43.6p per share. These projections create yields of 5.4% and 5.5%, comfortably beating the 3.2% FTSE 100 forward average.

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> Royston does not own shares in National Grid.