The energy sector has been under the cosh of late, with political pressure on prices adding to the problems of falling consumption.
And that’s reflected in the latest forecasts, with National Grid (LSE: NG) (NYSE: NGG.US) currently put down for a 7% fall in earnings per share (EPS). But if the forecasters prove correct, we should see a modest 3.3% rise in the annual dividend to 42.2p per share.
Steady yield
On the current share price of 849p, that would give shareholders a yield of 5%, and that steady dividend is a big attraction for income investors. It would only be modestly covered, with earnings exceeding the dividend by 1.23 times, but this is about the most predictable business there is with an effectively captive audience and predictable long-term costs and revenues.
Whether that predictability is still with us will be known on Thursday 15 May, when we’ll have full-year results.
But how has National Grid been faring so far?
An unexciting year
At the interim stage, the company told us that its outlook for the full year is unchanged, and chief executive Steve Holliday said “We reconfirm our positive outlook for 2013/14 – overall, we are well positioned to deliver another year of good operating performance and sustainable dividend growth“. That ties in with current forecasts and is compatible with the predicted fall in EPS.
The company expects to report full-year capital to the tune of around £3.5bn.
National Grid has also faced some environmental problems during the winter, with unusually cold weather in the US northeast leading to power cuts for around 150,000 customers. But in the UK, previous investment in flood defences apparently helped minimize any effects of wintry conditions.
What’s National Grid looking like as an investment? The share price has picked up over the past six months, giving us a P/E based on predictions of next week’s results of 16. That’s above the FTSE’s long-term average and is historically high for National Grid.
Better bargains?
For a dividend that’s significantly ahead of the FTSE’s average yield of 3%, a lot of investors will think that’s a fair price. But National Grid’s valuation is still ahead of others in the sector, like SSE on a forward P/E of 13 with a predicted 5.7% dividend yield, and Centrica yielding 5.4% from a P/E also of 13.
Worth the price as a long-term investment? We should know more on the 15th.
