How safe is the National Grid dividend payment?

National Grid (LON:NG.) is a large cap electricity and gas utility company focused on transmission and distribution activities in electricity and gas in both the United Kingdom and the United States.

For the fiscal year ended 31 March 2019, National Grid plc revenues decreased 2% to £14.93bn and net income before extraordinary items decreased 26% to £1.5bn. The group pays out an attractive rolling dividend yield of 5.44%, which is forecast to rise by 2.96% over the next year.

I'd like to know how safe National Grid's dividend is. Dividend cover (earnings per share divided by dividend per share) of two times or above is strong. Anything below one and a half times suggests we need to look a little closer.

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Computing National Grid's dividend cover ratio

Poor dividend cover means that a small decline in earnings could consign your dividend payment to the scrap heap. It could also mean that the company is forgoing profitable investment opportunities that could generate future earnings growth. With that in mind, let’s take a look at National Grid dividend cover.

We can get all the information we need to see if National Grid has an adequate level of dividend cover from the group’s StockReport. The group’s trailing twelve month (TTM) EPS is 44p and its TTM dividend per share is 47p.

Divide the former by the latter and we get a trailing twelve-month dividend cover for National Grid of 0.93. This is below the 1.5 times cover limit that marks the point at which we should do some further digging on dividend sustainability and safety.

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As for National Grid (LON:NG.), you can find a wealth of financial data on the group's StockReport, including information on the group's past and forecast dividend payments. If you’d like to discover more about dividend investing, you can read our free ebook: How to Make Money in Dividend Stocks.