Stable dividend for long-term holding
Investors looking for regular dividend income will appreciate this energy sector firm. The company analyzed today focuses on sustainable earnings distribution and a long-term dividend policy. With a bi-annual payout and a solid yield, it offers an attractive opportunity for those who prefer stable income. In addition, the company benefits from its key role in energy infrastructure on two continents, which makes it resilient to market fluctuations and supports dividend growth well into the future.
With its stable growth and long-term dividend strategy, the company has established itself as a reliable choice for investors seeking regular income. The history of dividend payments dates back to 2005 and the regular twice-yearly payout ensures an attractive yield.
Company introduction
National Grid $NGG-1.8% is a major energy infrastructure company that specializes in the operation and maintenance of electric and gas utilities. The company's primary focus is the distribution of electricity and natural gas and it operates primarily in the UK and the United States. It is a key company that plays an important role in the long distance transmission of energy, ensuring that electricity and gas are transmitted efficiently and safely to homes and businesses.
National Grid's history dates back to 1990 when it was established as part of the privatisation of the UK energy sector. Originally a company focused solely on electricity transmission, over the years it has expanded its reach into the gas sector through both organic growth and strategic acquisitions. One of the largest acquisitions occurred in 2002, when National Grid took over Lattice Group, the parent company of British Gas, making it one of the leading players in the UK gas market.
Interestingly, National Grid also has a significant stake in renewable energy. The company is investing in technologies that support the transition to cleaner energy, including the development of infrastructure to connect wind farms and other renewable sources. In doing so, it is responding to global trends towards sustainability and reducing its carbon footprint, which are increasingly important to investors and governments around the world.
National Grid operates in two main markets - in the United Kingdom, where it manages electricity and gas transmission networks, and in the United States, specifically in northeastern states such as New York, Massachusetts and Rhode Island. This international presence allows the company to diversify its business and better face the risks associated with regulation and market changes.
The company focuses on long-term infrastructure investments, which is important to ensure stable and reliable returns. One of the main products National Grid provides is power transmission capacity, which enables it to deliver electricity and gas to end customers. While this appears to be an invisible service, its importance to the economy is crucial - without stable power transmission, the functionality of the entire economy would be compromised.
In recent years, the company has made several major acquisitions that have strengthened its position in the global market. In addition to the aforementioned takeover of Lattice Group, another important transaction took place in 2021 when National Grid bought Western Power Distribution, the UK's largest electricity distributor. This acquisition was of strategic importance as it strengthened National Grid's position in the UK market and enabled the company to better respond to the growing demand for renewable energy and smart grids.
National Grid is also heavily involved in research and development in the area of smart grids, which enable more efficient management of energy flows and better integration of renewables into existing infrastructure. Smart grids are key to the future of the energy sector as they enable more flexible and efficient management of supply and demand, which is increasingly important given the growth of renewables and decentralised energy generation systems.
Dividend
National Grid pays its shareholders a current dividend yield of 5.25%, making it an attractive investment compared to the energy sector average of around 3.37%. The company has a long-term focus on stable dividend payments, an important factor for investors seeking regular dividend income.
National Grid is known not only for its stable market position but also for its long-term attractive dividend policy. The company regularly pays dividends twice a year and its dividend history dates back to 2005. In recent years, the company has maintained a consistent dividend payout, which is an important factor for investors looking for reliable and stable income.
In 2024, National Grid announced a dividend of $2.49 per share, which was paid on July 19.
National Grid has also shown long-term dividend growth. Over the past three years, annual dividends have grown at an average annual rate of 5.2%, while over the past five years the growth rate has declined slightly to 3.6% per year. Looking at a longer horizon, ten years, dividend growth has averaged 1.8% per annum. This consistent growth shows that the company is committed to a stable dividend payout and long-term growth in value for its shareholders.
Dividend sustainability is also an important indicator for investors. For this, it is useful to monitor the payout ratio, which measures how much of the company's profits are paid out to its shareholders. Currently, National Grid's payout ratio is 1.03, which may indicate that the current dividend payout is on the edge of sustainability. This means that all profits are currently being paid out as dividends, which may not be sustainable in the long term unless there is a growth in profitability.
However, from a profitability perspective, National Grid has a rating of 7 out of 10, indicating that the company has good profitability prospects. National Grid has achieved positive net income every year over the past decade, confirming its strong financial performance and ability to generate earnings that support dividend payments. This stable profitability provides the company with a solid foundation for future dividend payments and growth.
The company's growth metrics further support the sustainability of the dividend. National Grid has experienced revenue growth of approximately 11.5% annually over the past three years, demonstrating a strong business model. The company also shows average earnings per share (EPS) growth of 8.9% per year, another positive indicator for long-term sustainability and potential dividend growth.
Outlook
The outlook for 2025 is very optimistic, with earnings per share expected to reach $4.86, which would represent a 6.2% year-over-year growth. Similarly, the company's revenue is expected to grow to $17.69 billion, which would represent a 4.6% year-over-year growth. This indicates the company's solid growth potential in the coming year.
The strategic investments planned by National Grid are another important factor supporting the company's growth. By 2026, the company intends to invest more than $52 billion to develop its operations in the United Kingdom and the United States. A significant portion of this investment will be in power transmission projects, with 17 major onshore and offshore projects in the UK having been fast-tracked by the UK energy regulator Ofgem. In the United States, National Grid is set to invest more than $4 billion to upgrade the power grid, particularly in New York State.
The company is also actively engaged in emissions reduction and sustainability. National Grid has set ambitious goals such as achieving net zero greenhouse gas emissions in Scope 1 and 2 areas by 2050. It plans to reduce emissions by 50% by 2030 and 34% by 2026 compared to 2018/19. Other targets include achieving 100% alternative fuel use for the fleet by 2030 and moving to 100% renewable electricity for self-consumption. It also plans to increase the energy efficiency of its offices by 20% by 2026.
National Grid shares have shown strong growth in recent months, rising 23.4% over the past three months, well above the industry average, which has seen growth of around 9.9%. This growth is the result of a positive outlook for future profits, revenue growth and significant investment in infrastructure.
Results over the last few years
Over the last twelve months (TTM) to 31 March 2024, the company has achieved total revenues of £19.85 billion. Cost of production was £5.30 billion, resulting in a gross profit of £14.55 billion. Operating costs reached £9.09 billion, bringing operating profit to £5.46 billion. Profit before tax was £3.05 billion, after tax net profit for shareholders increased to £2.29 billion. Earnings per share (EPS) were £2.85.
In 2023 the company's revenues were £21.66 billion. Cost of production climbed to £8.62 billion, resulting in gross profit of £13.04 billion. Operating costs were £8.15 billion, bringing operating profit to £4.88 billion. Profit before tax was £3.59 billion, net profit for shareholders was £7.80 billion, leading to earnings per share (EPS) of £9.75.
In 2022 the company reported sales of £18.45 billion, with cost of production of £6.10 billion and gross profit of £12.35 billion. Operating costs were £7.98 billion, bringing operating profit to £4.37 billion. Profit before tax was £3.44 billion and net profit for shareholders was £2.35 billion, with earnings per share (EPS) of £3.01.
In 2021 the company achieved sales of £13.67 billion. The cost of production was £4.26 billion, resulting in a gross profit of £9.41 billion. Operating costs were £7 billion, leading to an operating profit of £2.41 billion. Profit before tax was £1.66 billion and net profit for shareholders was £1.64 billion, with EPS of £2.13.
Underlying metrics and ratios vs. sector average 👇
Analysts' forecasts
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