National Grid Shares Buy or Sell?

In this article, we will take a look at the prospect of investing in National Grid, shine a light on the National Grid dividend history and examine whether National Grid shares are buy or sell.

What Is National Grid?

National Grid is a UK electricity and gas utility company which was formed during privatisation in 1990 and is a constituent of the FTSE 100 stock index. 

It owns and operates the electricity transmission network in England and Wales, where it is the only company licensed to transmit electricity. Besides Britain, National Grid also operates electricity and gas transmission networks in Massachusetts, New York and Rhode Island in the United States.

National Grid Shares Buy or Sell

So, are National Grid shares buy or sell? In the following sections, we will highlight the current buy and sell cases for National Grid stock.

Buy

First up, the buy case. Why might an investor choose to buy National Grid shares? 

Utility stocks, such as National Grid, are typically classified as defensive stocks. Because utilities are a modern day necessity, the companies which provide them tend to be able to rely on fairly consistent demand throughout all stages of the economic cycle.

This is particularly true of National Grid. As mentioned earlier, in England and Wales, it is the only company licensed to transmit electricity. With electricity being a modern necessity, National Grid’s monopoly on its transmission in these countries means its earnings are even more reliable than other companies which operate in this sector, as it does not need to worry about threats from competing businesses.

These reliable earnings mean that National Grid shares, and indeed shares of other defensive companies, tend to experience lower levels of volatility, and share price can remain resilient during times of economic turmoil.

Furthermore, demand for electricity is likely to intensify in the coming years as the world transitions from fossil fuels to clean energy sources. National Grid has been looking to take advantage of this opportunity by investing heavily in infrastructure to help fuel future growth.

Consistent earnings have also allowed National Grid to build an excellent track record of paying dividends to shareholders. It has raised its annual payout each year for more than two decades, which makes it a UK dividend aristocrat (more on the National Grid dividend history to come). 

At the time of writing, the National Grid dividend yield is around 5.5%, considerably higher than the yield of the wider FTSE 100 which is currently 3.6%.

Sell

Although some may view National Grid stock as a relatively safe investment, like any investment, it carries risk.

Maintaining its transmission network can be costly and, as mentioned, National Grid is also investing heavily to meet the growing demand that will accompany the green energy transition. This high level of expenditure has contributed to a large debt burden for National Grid. 

As of 31 March 2024, the company’s net debt stood at £43.6 billion. For reference, at the time of writing, National Grid’s market capitalisation is around £48.86 billion. Servicing this large amount of debt could hinder the company’s future growth prospects, as well as its ability to fund dividends in the future.

This high debt burden helps explain the recent rights issue, in which existing shareholders were given the opportunity to buy 7 new shares at a discounted rate for every 24 already owned. The £7 billion raised from this rights issue has been earmarked for further future investment plans. 

National Grid Dividend History

One of the big draws for investors who decide to buy National Grid shares is their income potential. National Grid has a long history of paying and increasing its annual dividend payments, having done so for more than 20 consecutive years. 

However, it must be remembered that dividends are never guaranteed. Furthermore, following the rights issue in 2024 - which increased National Grid’s share count by approximately 29% - and a subsequent statement on dividends, dividend per share is almost certain to decline in the current financial year in nominal terms.

The chart below shows the National Grid dividend history since the year 2000.

National Grid Stock Forecast

So, what do the analysts currently think about investing in National Grid? Out of 11 analysts offering a National Grid stock forecast in the last three months there are currently 9 buy, 2 hold and 0 sell ratings for the stock.

The highest of these National Grid stock forecasts gave a 12-month price target of 1,200p, whilst the lowest price target was 985p. The average National Grid stock forecast was 1,119.45p.

How to Buy National Grid Shares

With an investing account from Admirals, you can buy National Grid shares. Follow these steps in order to learn how to buy shares in National Grid:

1. Open an Invest.MT5 account.
2. Log in to the Dashboard.
3. Open the web trading platform.
4. Search for National Grid stock and click the symbol to open a price chart.
5. Create a new order, enter the number of National Grid shares and click Buy to send the order to the market.

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