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Can you afford to miss National Grid plc’s 5%+ dividend and bargain growth monster 3i Group?

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Energy transmission and distribution company National Grid (LSE: NG) has warmed investors hearts with a decent set of results for the year ended 31 March. The stock is up 1.36% at time of writing, as the group reported a 4% rise in underlying operating profit to £3.5bn, or 6% at constant currency.

National champion

This is much-needed good news after a troubled spell for the £28.3bn FTSE 100 dividend favourite, whose share price is flat measured over five years, and down 20% in 12 months. Today’s numbers also included a 3% rise in underlying earnings per share (EPS), asset growth of 6%, and return on capital employed of 12.3%, up from 11.7% in 2017.

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The key figure is the dividend, and National Grid recommended a full-year payout of 45.93p, up 3.75% on 2017. Over the year, the group paid £1.32bn to shareholders as cash dividends, plus a further £178m for share repurchases, £510m retained in the business.

Dividend delight

The stock currently trades on a mighty forecast yield of 5.7%, with cover of 1.2. Management has reiterated its policy of increasing the ordinary dividend per share at least in line with RPI inflation for the foreseeable future. This disciplined, capital efficient group remains a defensive dividend hero with strong cash generating abilities.

Chief executive John Pettigrew also reported “strong operational performance across the group”, with a 95% return on equity at its US business, better than target, and UK performance generating around £540m of customer savings in the first five years of Ofgem’s RIIO framework. It also significantly hiked capital investment, spending £4.3bn, a rise of 14% at constant currency. Today’s results are not quite electric, but the dividend continues to sizzle.

Positive equity

Private equity firm 3i Group (LSE: III) also reported its final results to 31 March but this time to a subdued audience, with the stock down 1.72% in response. However, investors clearly have high expectations, with the stock up a whopping 181% over five years, with generous dividend growth on top.

3i is down despite generating an impressive total return of 24% over the year of £1.43bn. However, total return was higher in 2017 at £1.59bn, hence the disappointment. Currency movements played a part, with a £16m foreign exchange hit compared with a £297m gain in 2017.

Power of 3i

CEO Simon Borrows heralded “another strong all-round performance” in a very busy year with £1.3bn of proceeds, £350m of realisations to complete by July 2018, and investments of £827m, including in five new companies. “We remain confident in our ability to deliver continued growth and our new dividend policy provides shareholders with clarity on future distributions.”

3i has been building its reputation as a standout dividend stock. The total dividend for 2018 was 30p, up more than 13% from 2017’s 26.5p. It has multiplied from 8.1p in 2013, when it revised its dividend strategy.

The forecast yield is 3%, with cover of 3.8, while 3i remains one of the FTSE 100’s secret bargains, trading at just 8.5 times forecast earnings. This may reflect uncertain City growth expectations, with EPS forecast to fall 17% in 2019, but it still looks like a bargain buy-and-hold to me.

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harveyj has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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