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National Grid (LSE: NG.) posted what I saw as upbeat first-half results on 7 November, but the shares haven’t done much in response.
The share price at the time of writing is down a bit since the pre-results close. And we’re talking of a FTSE 100 stock with a tasty forecast 5.6% dividend yield here.
National Grid shares have lost 8.6% so far in 2024, while the Footsie is up 3.6%. That’s largely due to a big dip in May when the company revealed its £7bn rights issue.
Quickly back
But what happened in the following few months is telling. The stock regained a fair bit of the May fall. And I see that as a sign of resilience.
Still, these latest events around National Grid’s growth plans, and the near-term uncertainty, are surely behind the current lukewarm market sentiment.
It seems everybody expected the company to just keep on making money and paying dividends, with barely a ripple on the horizon. Then the rights issue jolted us out of our complacency.
The whole episode highlights a key Foolish lesson for me, and it’s about change.
Start again
When a company we really like changes significantly in some way, it’s easy to do one of two things. We can just sell up and go look for something else.
Or we can put too much trust in our original judgement and just assume we got it right. And then stick with it, or buy more. I’ve been too sure of myself that way more than once.
But I think the best answer is to try to forget all we previously knew, and approach the company as if we’d never heard of it before.
Starting from scratch, would we consider buying the stock?
New risks
That makes me focus more keenly on the risks, especially any fresh ones. And I’m thinking mostly of dilution. Raising new capital dilutes per-share earnings and dividends, as the same profit is spread across more shares.
So far, it’s not too onerous. But might there be more to come?
Coupled with the share price falls, we still see a strong forecast dividend yield at the moment. Forecasts put the price-to-earnings (P/E) ratio at 14, dropping to 12 by 2027, which might not suggest a screaming buy.
But I think National Grid’s key attractions are largely unchanged.
What I like
The hope is that the new cash will help grow future earnings, and offset the dilution. And the monopoly position that I’ve always liked is still there.
But it does come at the expense of being in a regulated industry. National Grid is not fully free to do whatever it wants without restriction.
So, after resetting my take on this stock, would I buy now? Well, I’m still bullish.
My problem is that I don’t have anywhere near the cash to buy all the stocks I like. So it’ll have to sit on my shortlist for a while longer. And as shortlists go, it’s quite a long one.
