To aim for consistent passive income, it’s vital to invest in stable companies that generate reliable cash flows. And I’d say National Grid (LSE: NG.), the FTSE 100 company charged with operating most of the UK’s power grids, certainly fits the bill. After all, it’s a regulated monopoly!
Here, I’ll outline a strategy I could take to aim for £1,000 a year in passive income.
Steady away
Firstly, National Grid’s revenue model involves charging fees for the use of its distribution infrastructure and services. And the firm’s natural monopoly status has translated into a steady flow of rising dividends over the years, as we can see below.
| Financial year ending 31 March | Total dividend per share |
| 2025 | 59.6p (forecast) |
| 2024 | 58.1p (forecast) |
| 2023 | 55.4p |
| 2022 | 51.0p |
| 2021 | 49.2p |
| 2020 | 48.6p |
| 2019 | 47.3p |
| 2018 | 45.9p |
Regulation on how much the firm can charge (and therefore earn) means that dividend growth has been steady if unspectacular. Indeed, the payout has increased at a five-year compound annual growth rate of 3.84%.
While that may not sound particularly exciting, especially in today’s inflationary environment, the dividend is very predictable. And the defensive nature of the stock makes it popular with income investors.
This has resulted in a 21% share price rise over five years.
Passive income generation
Analysts expect National Grid to pay out 58.1p per share for its current financial year (ending 31 March 2024). At today’s share price of 1,006p, that translates into a prospective dividend yield of about 5.8%.
Therefore, to generate £1,000 in annual dividends, I’d need to buy 1,725 shares. These would cost me about £17,353.
Obviously, that’s a hefty chunk of money, one that I may not have at hand. But that doesn’t mean I couldn’t work my way up to such an amount over time.
For example, if I drip-feed £75 a week into the shares at an average price of 1,006p, I’d reach my £1,000 annual income target in four and a half years.
This is assuming the payout stays the same. But, as already noted, analysts see it rising higher.
Caveats
Of course, this example is illustrative. In reality, prices (and therefore yields) are constantly fluctuating and dividends are never guaranteed.
But it does demonstrate how modest sums can add up over time. And if I were to reinvest my dividends along the way, that would get me to my £1,000 figure even sooner.
Now, one caveat here is that some investment platforms still have trading fees. These would make this drip-feeding strategy unviable. Fortunately, though, there are many zero-commission investment apps today.
Massive demand
Looking ahead, National Grid does face some challenges as it invests heavily in decarbonising the UK’s energy transmission networks.
One is the sheer cost, with the company recently increasing investments to £42bn by 2026. Net debt now stands at more than £42bn and servicing some of this has become costlier.
Another challenge is convincing residents to live next to new pylons. Financial incentives have been mooted, but NIMBY (not in my back yard) opposition remains high, even to the more fetching T-shaped pylons.
Nevertheless, electricity demand in the UK is expected to double by 2035, boosted by rising electric vehicle adoption. So National Grid will remain as important as ever.
