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National Network (LSE:NG) shares are a great source of second income, paying some of the most reliable and rewarding dividends anywhere in the world. FTSE 100. As a regulated utility, its profit stream is quite strong. As a monopoly, competition is scarce.
Its main job is to distribute electricity to homes and businesses in the UK, but it adds a bit of appeal by delivering power to another 20 million customers in New York and Massachusetts.
Few investors buy it to increase the share price, since what matters is the dividend. However, over the years, the stock has performed quite well. The share price fell 0.82% in 12 months, but is up 29.1% in five years. This easily outperforms the FTSE 100 as a whole, which grew just 9.59% over the same period.
It's easy to see why investors love National Grid. This may not be the most interesting Footsie action. However, it is a great starting component for a direct equity portfolio.
Dividends and growth
Today, the stock generates earnings of 5.4% annually. This outperforms the FTSE 100 as a whole, which currently returns an average of 3.8%. It is projected to return 5.68% in 2024 and 5.82% in 2025. That would give me a high and growing second income, assuming those forecasts come true (there are never guarantees).
National Grid's payout is safer than most, even if it is covered only 1.2 times by profits. You can get away with relatively little coverage due to the regulated nature of your earnings.
That also helps it maintain relatively high levels of net debt. This figure is forecast to rise to £44.8bn in 2024 and £48.9bn in 2025. That exceeds the stock's market capitalization of £38.2bn and would terrify me of any other business. National Grid has to invest a small fortune in maintaining critical energy infrastructure and funding the switch to cleaner energy.
Their income is far from stable, even though they are regulated. In 2021, they amounted to £13.7 billion. That rose to £18.4 billion in 2022 and £21.7 billion in 2023.
High and increasing performance
First-half FY24 operating profits fell. However, this was anticipated and was primarily due to non-recurring items such as real estate land sales in the prior year. The board has also had to increase its regulatory capital spending by 10% to a record £3.9bn.
National Grid's annual dividend per share is forecast to rise from 55.44p in 2023 to 57.5p in 2024. Using the 2024 figure, you would need to buy 1,739 shares to generate an income of £1,000 in the first year of holding the shares. .
At the current price of 1,025p, that would cost me £17,825. Unfortunately, I can't afford to invest that much in a single stock. It would swallow up most of this year's stocks and Shares ISA provision. I would happily invest £5,000 at the current valuation of 16.1 times earnings. It is rarely cheaper.
If I had to go all in on just one FTSE 100 company for life, I'd probably choose this one. But I'm not in that position. I already have a dozen blue-chip UK companies, so now I want to get some very high-performing ones, ideally with even greater growth potential than National Grid offers. I bet the market will recover at some point this year and I want my portfolio to lead that trend.
