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National Network (LSE: NG.) released what I considered to be optimistic first-half results on November 7, but the stock hasn't responded much.
The share price at the time of writing is down a bit since the previous results closed. And we are talking about a FTSE 100 stock with a tasty 5.6% dividend yield forecast here.
National Grid shares have lost 8.6% so far in 2024, while Footsie is up 3.6%. This is largely due to a big drop in May when the company revealed its £7bn rights issue.
quick return
But what happened in the following months is revealing. The stock recovered much of May's decline. And I see it as a sign of resilience.
Still, these latest developments surrounding National Grid's growth plans and near-term uncertainty are surely behind the current tepid market sentiment.
It seems that everyone expected the company to continue making money and paying dividends, with hardly any repercussions on the horizon. Then the question of rights shook us out of our complacency.
The entire episode highlights a key silly lesson for me, and it's about change.
start again
When a company we really like changes significantly in some way, it's easy to do one of two things. We can sell it and go find something else.
Or we can rely too much on our original judgment and simply assume we got it right. And then keep it or buy more. I've been too sure of myself more than once.
But I think the best answer is to try to forget everything we knew before and approach the company as if we had never heard of it before.
Starting from scratch, would we consider buying shares?
New risks
That makes me focus more on risks, especially new ones. And I'm thinking mainly about dilution. Raising new capital dilutes earnings per share and dividends, as the same earnings are spread across more shares.
So far, it's not too onerous. But could there be more to come?
Coupled with the falling share price, we still see a strong dividend yield expected at this time. Forecasts put the price-to-earnings (P/E) ratio at 14, falling to 12 in 2027, which might not suggest a strong buy.
But I think the main attractions of National Grid remain largely unchanged.
what I like
The hope is that the new cash will help boost future earnings and offset dilution. And the monopoly position that I have always liked is still there.
But this comes at the expense of being in a regulated industry. National Grid is not entirely free to do whatever it wants without restrictions.
So after resetting my opinion on this stock, would I buy now? Well, I remain optimistic.
My problem is that I don't have anywhere near the cash to buy all the stocks I like. So it will have to stay on my shortlist for a while longer. And in terms of short lists, it's pretty long.
