Does National Grid plc offer dividend investing potential?

Could National Grid plc (LON:NG) (NG.L) deliver an improving income outlook?




National Grid
National Grid

With a dividend yield of around 6%, National Grid plc (LON:NG) (NG.L) has an income return which is around 150 basis points higher than that of the FTSE 100 at the moment.

In my view, this may suggest that it offers income appeal at first glance. However, the company faces political and regulatory risks which could hold back its financial and share price performance over the medium term.

With the Brexit process being very fluid, there is a continued chance of a general election over future months in my view. Since Labour apparently wants to nationalise a variety of industries, investor sentiment towards the stock could be held back while there is a risk of Jeremy Corbyn becoming Prime Minister.

Alongside this, National Grid may also face regulatory risks in my opinion. They could limit its overall returns, and may make it more difficult to pay a higher dividend over future years.

Although these risks could be detrimental to the company’s prospects, I feel that the stock market may have factored in its uncertain outlook to some degree. Its 6% dividend yield is relatively high from an historical standpoint, and indicates that there could be a margin of safety on offer at the moment.

I feel that investor sentiment towards the stock market could come under pressure at times during the course of 2019. There are a wide variety of risks facing a number of UK-focused companies. Investors may therefore turn their attention to perceived lower-risk shares. National Grid could be included in that bracket as a result of its track record of performance, as well as its business model.

Therefore, I’m upbeat about its long-term income potential. I do not feel that it is as defensive as it once was as a result of political and regulatory risks. But with what I consider to be a high yield, I feel its income return could be impressive in the long run.




About Robert Stephens 5430 Articles
Robert Stephens is a CFA Charterholder and an Equity Analyst by trade. He is a passionate private investor who has been buying and selling shares for many years, owning a wide range of UK shares in the process. He has written for Citywire and The Motley Fool US and now runs his own business. To contact Robert, please email info@investomania.co.uk or use one of the other contact methods available on the 'Contact Us' page