National Grid (NG) is the operator of the national electricity distribution network in the United Kingdom, notes Gavin Graham, a contributing editor to Internet Wealth Builder.
It also operates the national gas transmission network in the UK (which it is in the process of selling) and one of the ten largest Liquefied Natural Gas (LNG) terminals in the world, located just outside London.
It expanded in the 2000s by purchasing electricity and gas distribution networks located in the US Northeast, including Niagara Mohawk. About 53% of its assets are located in the UK, 39% in the US, and the remaining 7% is in National Grid Ventures, which holds the LNG terminal and the power cable connecting the UK with Europe.
Performance: Having initially sold down on higher bond yields after being recommended in January this year, the stock is now up 15%, although still 20% below its price five years ago.
Recent developments: The purchase of Western Power Distributors from PPL Corp. (PPL) for $13.5 billion closed in June. WPD is a major local electricity distributor in the UK. It owns four local distribution networks in the Midlands, the southwest, and Wales and made £750 million profit in 2020, so was purchased for less than 10.5 times earnings.
The sale of Narragansett Electric Company to PPL for $3.8 billion is due to close early next year. The company has reiterated its five-year forecasts for 5-7% compound growth in earnings per share, and for its dividends to rise in line with the Consumer Price Index (CPI), which at present is running at over 4% per year.
Dividend: NG, like most UK companies, pays dividends semi-annually, with one-third paid at the interim in December and the remaining two-thirds after the March year-end. Its 2020-21 dividend of £0.4912 was up 1.1% on the previous year and gives it a yield of about 7%.
Action now: With its high but sustainable yield, the WPD transaction adding to earnings, and the ability to reclaim most of the $400 million COVID-19 related costs it incurred in 2020-21, NGG is selling at a p/e of 14.5 times on depressed earnings. It remains a Buy.
