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More Steady Cash From National Grid plc

National Grid (LSE: NG) (NYSE:NGG.US) shares have picked up 7p (1%) to 868p since results were released yesterday (15 May), and the implicit “nothing unexpected” in that small movement seems like a fair summation.

We saw adjusted pre-tax profit up 2% to £2.58bn, with adjusted earnings per share (EPS) gaining 5% to 54p. And a final dividend of 27.54p per share takes the annual total up 2.9% to 43.03p for a yield of 4.9% on today’s price. So, a nice steady income that’s well in excess of the average FTSE yield of around 3%, and which is rising ahead of inflation — what’s not to like?

national gridInvestment and cost savings

We’re heading into a new eight-year phase of price controls in the UK, and National Grid has been busy preparing itself — over the year to 31 March 2014 the utilities giant invested £3.4bn in infrastructure, a period that chief executive Steve Holliday described as “one of our best years ever in terms of network reliability and resilience“. Around £70m of realised cost-savings is set to find its way towards reducing future bills for customers from 2015-16, we were told.

In the US, where National Grid supplies electricity and natural gas to a number of Northeast states, “operational improvements” helped towards what is widely seen as a steady year.

Forecasts

Looking forward, analysts are expecting to see a 16% fall in EPS over the current year, but with a much clearer view of future income (in part due to the double-edged sword that is regulation), National Grid should be comfortably able to lift its dividend ahead of inflation once again.

In fact, commenting on the firm’s outlook, Mr Holliday spoke of “…good organic growth to support our commitment to sustainable dividend growth” with further efficiency improvements already on the cards for the near future, so those yields of around 5% should be rolling in for some time to come.

A fine record

With a rise of about 3.5% over the past year, National Grid shares have just edged ahead of the FTSE 100. And over five years, the shares have climbed 63% compared to around 53% for the FTSE. On top of that, of course, the higher dividend yield has made National Grid a significantly more profitable investment than a FTSE tracker.

Those forecasts put the shares on a forward P/E of around 15.5, which is only a little ahead of the FTSE’s average of a bit under 14. Higher quality companies do, of course, command a higher rating. And all told, the shares still look like a pretty good long-term investment to me at today’s prices.

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Alan does not own any shares in National Grid.