An 18% Fall In Earnings For National Grid plc

When we got a look at full-year figures from National Grid (LSE: NG) (NYSE: NGG.US) on 15 May, it was all pretty much bang on expectations. But then, with the energy supply business having such a clear forward view of charges and prices, it is one of the easiest to forecast.

So, after a 15% rise in earnings per share (EPS) for the year ended March 2014, which followed on from a 16% gain the year before, what’s on the cards for the coming year?

Slipping back

ngWell, there’s a bit of retrenchment on the cards right now, with City analysts forecasting an 18% drop in EPS to 54.5p. That’s slightly ahead of the 53.8p they were predicting six months ago, so they’re presumably pleased with National Grid’s cost-saving measures as they have become apparent, but a year ago the same pundits were suggesting EPS of 57p.

Dividend forecasts have followed a similar pattern — 12 months ago the consensus was for 44p per share, but that dropped to 43.4p by six months ago and it’s stayed pretty much at that level since.

Such a payment would represent a yield of 4.9% on the current 890p share price, and that continues a falling-yield trend — from 6.2% in 2012, to 5.3% in 2013 and down to 5.1% for the year just ended.

Nice dividends

But the dividend itself has been steadily growing, by 3 to 4% per year for the past couple of years, which means the yield is dropping for the best of reasons — the share price is rising nicely.

Over the past year we’ve seen National Grid shares gain 12% while the FTSE 100 has only managed around 3%. And over five years, we’re looking at 65% against 52%. So, a share price that’s beating the FTSE and a dividend that’s rising faster than inflation — you can see why National Grid is considered such a safe investment.

But with falling earnings expected this year, what’s the future looking like?

Along with those results, the firm told us that its “long term growth prospects remain strong“, with the UK heading for a decade of new investment in new generating capacity.  The first new capacity auctions should be held later this year, with National Grid seeing significant opportunities.

And in the US, there’s growing demand for cheaper fuels like natural gas, which should also provide expansion possibilities.

Should we buy?

Between next year’s expected EPS fall and as-yet unquantifiable longer-term growth potential, the City’s analysts are split. We have four out of 18 rating National Grid a Strong Buy with four on Strong Sell. Of the rest, two say we should Buy while the remaining eight are sitting on the Hold fence.

But while interest rates remain low, National Grid’s 5% dividends look attractive.

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Alan does not own any shares in National Grid.