Image source: National Grid plc
Those wanting to know how much money they’ve made (or lost) on their National Grid (LSE:NG.) shares could use the calculator on the energy group’s website.
This tells me that a £10,000 investment made on 13 May 2020 is now (five years later) worth £10,792. That’s a return of 7.92%. And this excludes the substantial dividends that would have been received over the period.
The calculator says that the shares would have cost 942.8p each. But this is different to the figure provided by the London Stock Exchange. It reckons the share price was 842.6p five years ago. And as the official operator of the UK stock market, it should know.
I think National Grid has adjusted its prices to take into account the rights issue of May 2024. At the time, it offered shareholders the opportunity to buy seven more shares for every 24 held, at a discounted price of 645p.
Surprise!
The decision to raise more money came as a bit of a shock to investors. But it now appears to be a distant memory. With a market-cap of £50bn, the group’s worth around £17bn more than after the fund raising was announced.
However, the rights issue is a reminder that energy infrastructure is expensive. The group plans to spend £60bn from 2025-2029. This is more than double the capital expenditure of the previous five years.
And it’s an indication that the company’s directors felt they couldn’t turn to the debt market to borrow more money. Instead, they asked shareholders for the extra cash. At 30 September 2024, it had net debt of £38.5bn.
But it’s the future that really matters.
Future prospects
And National Grid looks well positioned to benefit from its UK and US exposure. It’s the only supplier in its major markets, which means it can concentrate on operational delivery rather than worry about attracting new customers.
Also, due to the long-term nature of its contracts – and the fact that it’s regulated – the group knows with a reasonably degree of certainty what level of return it’s going to make.
This should help the company meet its commitment to grow its dividend in line with a measure of UK inflation, known as ‘CPIH’. This is similar to the consumer prices index but excludes housing costs. It’s presently running at 3.4%.
Currently, based on amounts paid over the past 12 months, the stock’s yielding 5.4%. This puts it in the top fifth of FTSE 100 dividend payers. By comparison, the average for the index is around 3.5%.
But I don’t expect the group’s share price to take off any time soon. Given that it enjoys monopoly status, the scope for rapid earnings growth is limited. I think it’s more likely to be a case of ‘steady as she goes’.
And it’s not immune from the global challenges that other businesses face. The demand for electricity and gas will be affected if there’s an economic slowdown. Personally, I think there’s still a lot of uncertainty surrounding President Trump’s approach to tariffs.
However, despite these challenges, I believe the stock’s one that income investors could consider.
