Yahoo Finance National Grid's (LON:NG.) Shareholders Will Receive A Bigger Dividend Than Last Year
National Grid plc (LON:NG.) has announced that it will be increasing its dividend from last year's comparable payment on the 11th of January to £0.1784. This will take the annual payment to 5.1% of the stock price, which is above what most companies in the industry pay.
Check out our latest analysis for National Grid
National Grid's Earnings Easily Cover The Distributions
If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, National Grid was earning enough to cover the dividend, but it wasn't generating any free cash flows. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.
EPS is set to fall by 5.3% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could be 69%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
National Grid Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the annual payment back then was £0.429, compared to the most recent full-year payment of £0.516. This implies that the company grew its distributions at a yearly rate of about 1.9% over that duration. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.
The Dividend Looks Likely To Grow
Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that National Grid has been growing its earnings per share at 12% a year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.
Our Thoughts On National Grid's Dividend
Overall, we always like to see the dividend being raised, but we don't think National Grid will make a great income stock. While National Grid is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for National Grid you should be aware of, and 1 of them is potentially serious. Is National Grid not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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