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National Network (LSE:NG) shares are among the most popular around the world. FTSE 100. The electricity transmission giant offers investors a reliable income stream with relatively low share price volatility. That’s the theory, anyway.
But is National Grid really as strong as people think? And does the revenue make up for the lack of share price growth prospects?
There is almost no chance that National Grid will go bankrupt. As a monopoly electricity supplier, we simply cannot allow that to happen. The United Kingdom would come to a standstill. However, that doesn’t stop its share price from going up or down, like any other stock.
So how safe is it?
Over the past five years, National Grid shares have risen a steady 20.41%. This may not seem extraordinary at first glance, but it has outperformed the index as a whole. The FTSE 100 is up just 7.09% during what has been a bumpy period, with Covid and the cost of living crisis, and everything else that has been going on.
Over the last year, National Grid is up just 2.86%, trailing the FTSE 100 which is up 7.66%. The real problem came in the last six months, when it fell 17.13%. If I had invested £5,000 in its shares six months ago, my money would be worth just £4,143.50 today, plus any dividends I would have earned. That’s not what I expect to happen with National Grid.
This illustrates an important lesson for investors. No matter how supposedly safe a stock is, there is always the danger of it falling.
Utilities have been hit hard across the board lately, thanks to rising bond yields. Investors can now earn yields of 4.8% on 10-year UK bonds or US Treasuries, making them think twice before betting on stocks.
FTSE 100 listed shares United Public Services GroupFor example, they have fallen 13.18% in the last six months. FTSE 250 listed water company Pennon Group It has gone even worse. His shares are down 29.72% during the same period.
Going back to National Grid, I still think it offers bonds a good return with a current yield of 5.86%. Especially since analysts expect it to reach 6.18% in 2024 and 6.34% in 2025.
I like other dividend stocks better
Its shares typically trade around the fair value of 15 times earnings. Today they are only marginally cheaper, 14.86 times. I don’t have National Grid shares in my SIPP or ISA portfolios, but I’ve been wondering whether to buy them for some time and the recent drop looks like an opportunity. So what’s stopping me?
While I admire the shares and would be happy to hold them, I think the FTSE 100 has more interesting targets for my money today. Many blue-chip dividend-paying companies are now so cheap, given the general gloom, that they can hardly fall much further (although never say never). They also offer higher yields and higher share price growth potential to National Grid.
Lloyds Banking Group It’s just an example. It now trades at just 5.6 times earnings and is forecast to return 7.23% in 2024. I own the stock and would rather buy more than National Grid. Diversification is great, but you can take these things too far.
