Yahoo Finance National Grid (LON:NG.) Is Increasing Its Dividend To £0.194
National Grid plc (LON:NG.) has announced that it will be increasing its periodic dividend on the 11th of January to £0.194, which will be 8.7% higher than last year's comparable payment amount of £0.178. This will take the annual payment to 5.6% of the stock price, which is above what most companies in the industry pay.
Check out our latest analysis for National Grid
National Grid's Dividend Is Well Covered By Earnings
If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, National Grid was paying out quite a large proportion of both earnings and cash flow, with the dividend being 593% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.
Over the next year, EPS is forecast to expand by 12.9%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 74% which brings it into quite a comfortable range.
National Grid Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2013, the annual payment back then was £0.435, compared to the most recent full-year payment of £0.554. This implies that the company grew its distributions at a yearly rate of about 2.5% over that duration. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.
Dividend Growth Is Doubtful
Investors could be attracted to the stock based on the quality of its payment history. However, things aren't all that rosy. It's not great to see that National Grid's earnings per share has fallen at approximately 6.9% per year over the past five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
National Grid's Dividend Doesn't Look Sustainable
Overall, we always like to see the dividend being raised, but we don't think National Grid will make a great income stock. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. Overall, we don't think this company has the makings of a good income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. To that end, National Grid has 2 warning signs (and 1 which is significant) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
