Dividend of the Week - National Grid

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Dividend of the Week - National Grid

Recent falls in the market make it easier to choose a dividend of the week as yields have risen across the board. However markets have a habit of pushing beyond what you think is reasonable so once again, as has been the case with most of our recent dividends of the week, we will err on the side of caution. This week we are looking at National Grid. The shares have been hit very hard in the recent market falls, which is unusual for a safe haven stock. Having said that they also recently went ex-dividend on June 5th, which would account for 26p of the fall. The shares have fallen sharply from 847p to 712p and are not that far above their 52 week low.

Given the very nature of their business, National Grid should be a core holding for most portfolios and now looks like a good time to investigate the stock. The recently announced new dividend policy is not as generous as the previous one, but they have stated that dividends will rise ‘at least in line with RPI inflation’. The company has been steadily increasing its return on capital employed in both the UK and the US in recent years and has made a good start to the new financial year with a positive outlook in the recent final results. Analyst are predicting that earnings will be flat to slightly down this year.

The main reason for holding National Grid is its safe dividend and there is no reason why this situation should not continue. It managed a 12% increase in earnings per share last year which is a bonus. Overall, earnings have grown 60% over the past six years from 35.2p per share to 56.1p per share in the year to March 2013. It is on a P/E of around 13x, which is not screamingly cheap, but does reflect the safe nature of the stock, the steady if unspectacular growth in earnings and of course the inflation protected dividend. Given the recent sharp fall in the share price, now is a good time to look at National grid.

Companies mentioned

This article was originally acceessible only to DividendMax members and is now publicly available.