The 2020 stock market crash has thrown up all sorts of bargains for both growth investors and dividend investors. Today I’m turning to that great long-term dividend stock, National Grid (LSE: NG). The National Grid share price is down in 2020, but only by around 10%.
That’s less than half the FTSE 100‘s fall, and nothing like the losses we’ve seen from some riskier stocks. But any short-term dip in a dependable long-term dividend share must be a buying opportunity, at least in my book. And National Grid looks about as dependable as they come.
Energy is one of those real must-haves, and National Grid commands the energy distribution networks. For me, that puts it among the best defensive stocks out there. And I really don’t think it deserves to be down even 10%.
Crash? What crash?
Because of the pandemic slump, a lot of companies have suspended or reduced their dividends. But National Grid hasn’t. The 2020 dividend was lifted 2.6%, easily beating inflation, to yield 5.7% on the current share price. National Grid offers scrip dividends too, so you can acquire new shares without having to pay any broker fees. That, I think, is exactly the right thing to go for. Especially this year, as you’ll get that bit more with the National Grid share price being down.
The stability of the company’s dividends is all thanks to the stability of its markets. The business energy market is perhaps slightly shaky this year thanks to all the factory, office, and shop shutdowns. But the damage looks like it should be minimal. Underlying earnings per share (EPS) dipped only 1% for the year ended March 2020, though a 2.6% hike to the interim dividend suggested long-term confidence. Forecasts suggest a 3% EPS fall for the current year, before a return to growth with 9% penciled in for the 2021–22 year.
Short-term impact
At results time, the company confirmed that Covid-19 is having an impact. And that will have held the National Grid share price back. But it said: “We expect this to be largely recoverable over future years and therefore anticipate no material economic impact on the group in the long-term.“
Concerning its immediate outlook, National Grid added: “We continue to target asset growth of 5-7% in the near term and with an efficient balance sheet that underpins asset and dividend growth, the Group is well positioned to create value for shareholders.”
National Grid share price value
But what about valuation? The current 864p National Grid share price represents a trailing price-to-earnings multiple of 15 on underlying earnings figures. And forecasts suggest it will vary slightly around that level over the next two years.
That’s close to the long-term FTSE 100 average, so it might not seem like any great bargain. But I think that assumption would be a mistake, because National Grid is far from being an average company.
Those with attractive growth prospects deserve premium ratings, and often get them. But companies offering reliable dividends with high yields should be highly valued too. On that basis, I’m convinced National Grid shares are cheap.
