National Grid 4% Yield Offers "Solid Returns"

National Grid has grown into one of the largest utilities in the world since since U.K. regulators unbundled energy distribution, transmission, and supply in the 1980s

Travis Miller 23 May, 2017 | 3:24PM
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National Grid's (NG.) core U.K. transmission and U.S. regulated gas and electric distribution utilities continue to perform well. New rate schemes in the United States and continued incentive revenue in the United Kingdom are resulting in earned returns on equity that are 100-200 basis points higher than U.S.-based regulated utilities. This supports a dividend pay-out above 70% and extra leverage with no distress concerns. But dividend growth at a 2% inflation rate is meagre relative to peers. We don't see that changing anytime soon because of Grid's growth investment plans and already-high pay-out ratio. Instead, we expect its 4% yield and rapid book value growth to offer solid returns. 

Dividend growth at a 2% inflation rate is meagre relative to peers

Morningstar analysts are reaffirming our £10.20 per share fair value estimates for National Grid after the company reported 2016-17 fiscal-year adjusted earnings of 73p per share, in line with our estimate. Pro forma earnings on a go-forward basis were closer to 59.2p per share.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
National Grid PLC930.00 GBP0.00Rating

About Author

Travis Miller  is the director of utilities sector securities research at Morningstar.

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