National Grid (LSE: NG) is a dividend share I’ve long believed in because of the defensive nature of its operations and its ability to keep lifting dividends.
This week however, the risks associated with the business went up several notches after it came in the crosshairs of Jeremy Corbyn and his left-wing party. In its latest attack on the utilities sector, Labour has vowed to re-nationalise the National Grid. But this isn’t all. Rumours have emerged it would pay below the market rate for the network operator’s shares by subtracting items such as state subsidies the firm received since privatisation in the 1990s.
There’s still a long way to go before plans could be realised, though. Aside from the question of whether the government could actually afford to bring the business back under state control, Labour would also have to win a general election for this to happen.
And right now the political malaise around Brexit, and more specifically Corbyn’s position on the saga, means the keys to Number 10 aren’t exactly there for the taking. Not that we’re necessarily close to a fresh general election being called, of course.
In other news, in a mixed set of results also released on Thursday, National Grid announced underlying operating profit fell 2% in the 12 months to March 2019, to £3.4bn. The power play was hit by the return of revenues resulting from the binned Avonmouth nuclear project and tax changes in the US, problems partly offset by improved property profits and a favourable legal settlement in the States.
Rewards outweigh the risks
So should you consider snapping up National Grid? Well, glass-half-full investors would argue that re-nationalisation of the utility remains a long way off and that the company’s’ low valuation — National Grid currently boasts a forward P/E ratio of just 14 times — reflects the threat of crushing political action in the months or years ahead.
What’s more, the electricity giant’s appeal as a dependable dividend raiser will have been boosted considerably too. National Grid hiked the payout for fiscal 2019 to 47.34p per share, from 45.93p a year earlier. And City analysts are anticipating payouts will keep rising in the medium term at least, to 48.8p and 50.2p this year and next, respectively, numbers that yield a chubby 6% and 6.2%.
Should National Grid manage to avoid the trap being laid by the Labour Party then the future certainly looks rosy, in my opinion. It’s poised to turbocharge annual investment to £5bn for the next two years, putting it in great shape to hit its asset growth target of 5% and 7% over the medium term. And as some of the FTSE 100’s bigger beasts are cutting dividends, I remain convinced this one’s defensive operations can allow it to continue raising them instead.
All things considered, I think National Grid remains a brilliant buy today.
Royston Wild 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.