There are always lots of numbers to evaluate when deciding whether or not to buy a particular share.
Today I’m going to quickly look at three numbers that anyone thinking about investing in National Grid (LSE: NG) (NYSE: NGG.US) might want to consider.
That’s National Grid’s currently percentage yield. It’s close to double the FTSE 100 average, and is much more than you’d get from a savings account.
For many income-seeking investors, this yeild may be reason enough to buy shares in National Grid (so long, of course, that they’re happy the company is fundamentally sound).
Better still, the yield is effectively index-linked. Under its new dividend policy, which came into force on April 1st , National Grid “will aim to grow the ordinary dividend at least in line with the rate of RPI inflation each year for the foreseeable future“. And that’s no joke, despite the date it commenced.
That’s how many years National Grid’s new price-controls arrangements for its regulated UK assets will run. After more than three years of negotiations, National Grid announced at the end of February that it had agreed to Ofgem’s proposals, and the new arrangements came into force on 1 April.
Price controls may seem like bad news, because they set a limit on how much money the company can make from much of its business. However, they also provide a great deal of stability. As National Grid chief executive Steve Holliday said, when the agreement with Ofgem was announced:
“These arrangements give our UK businesses their longest ever period of regulatory clarity. This enables us to focus on driving efficiency across our operations while building the infrastructure that the country needs and at the same time realise the benefits of excellent performance for both customers and investors.“
It’s no coincidence that National Grid’s new inflation-linking dividend policy came into effect on the same date as the new price control arrangements.
That’s how many pounds sterling National Grid might spend in the UK in 2013/14, as part of its long-term plan to significantly expand its regulated asset base.
It’ll also be spending between £1.3bn and £1.4bn in the US, to upgrade existing infrastructure there. The group’s spending is in line with its stated aim of “growing regulated assets by around 6% per annum over the next few years”.
Investment in the UK will include major activities such as the London Power Tunnels project — a seven-year plan to rewire the capital via deep underground tunnels — and further planning for the western High Voltage Direct Current (HVDC) link with Scotland.
Such projects are vital to the company’s long-term revenue generation — partly because it needs to be able to meet future demand, but also because it needs to ensure that its assets function as efficiently as possible.
National Grid is actually one of the companies featured in the Motley Fool special report, “5 Shares To Retire On“, along with four other quality companies for the long-term — companies that have an outstanding record of providing reliable shareholder returns.
> Jon owns shares in National Grid.
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