Picture supply: Nationwide Grid plc
Energy community operator Nationwide Grid (LSE: NG) is crucial to lighting up the nation. The FTSE 100 firm has additionally lit up 2025 for its buyers, with Nationwide Grid shares up 19% because the flip of the yr.
That’s solely barely higher than the FTSE 100 efficiency up to now this yr, which is an 18% achieve. However as many buyers see utilities as a sleepy sector, I reckon that 19% achieve is spectacular.
On prime of that, Nationwide Grid has a dividend yield of 4.1% and goals to develop its payout per share yearly in step with inflation.
Why have Nationwide Grid shares executed so nicely this yr – and ought I to take a position?
Heaps to love – however no new wow issue
The reply is, I’m a bit puzzled as to why Nationwide Grid shares have executed so nicely this yr.
There’s a lot to love concerning the firm – however largely that’s nothing new.
It has an efficient monopoly in some areas of its enterprise, as replicating its distribution community could be cripplingly costly for a rival to do, if not downright inconceivable.
The agency is about to learn from ongoing demand for many years to come back. It has numerous expertise whereas on the identical time, it’s reshaping its asset base to maintain it related as energy era and utilization developments shift.
However that was all true – and apparent – again in January.
Enterprise efficiency has been robust
Perhaps one clarification has been the corporate’s strong efficiency this yr.
On the interim level, for instance, revenue earlier than tax was up by greater than a fifth in comparison with the identical interval final yr. That’s a powerful soar,
The corporate has additionally pointed to doable new sources of demand progress.
For instance, this yr it has been speaking about its skill to attach sizeable new quantities of energy to the grid to assist so-called AI progress zones. Information centres are very power-hungry, one thing that would assist enhance revenues for Nationwide Grid.
So whereas utilities are hardly ever seen as progress shares on account of their mature markets, maybe this progress story may help clarify why Nationwide Grid shares have executed nicely up to now this yr.
I don’t just like the underlying economics
On prime of that, the corporate’s dividend coverage stays enticing to many buyers.
I’m not certainly one of them, although. This yr has demonstrated why, with the corporate slashing its dividend per share.
So, whereas Nationwide Grid goals to develop its dividend per share yearly, it has failed to take action.
Alongside that, internet debt has been rising regardless of a giant rights subject final yr that diluted present shareholders.
Each occasions level to what I see as an ongoing structural threat for the corporate: the excessive value of sustaining its ageing infrastructure. The corporate is in the midst of a five-year funding plan that prices a whopping £60bn.
The economics of excessive capital funding and dividend progress are troublesome to juggle, as this yr’s lower within the payout per share demonstrated. That places me off investing.
