Here’s how many National Grid shares I’d need to buy for a £100 monthly income!

National Grid shares have a solid dividend history and currently offer a higher yield than the FTSE 100 average, but they carry risks too.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

There’s a strong argument that National Grid (LSE:NG.) shares could be a great dividend power play. The electricity transmission operator has an impressive record of delivering passive income to shareholders stretching back decades, even during periods of macroeconomic crisis.

So, how much would I need to invest in the FTSE 100 company for a second income of £1,200 a year? And what’s the outlook for future share price growth?

Here’s my take.

Should you invest £1,000 in National Grid right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if National Grid made the list?

See the 6 stocks

Dividend income

National Grid pays dividends twice a year. In the latest financial year, the company grew its dividend by 8.8% to 55.44p per share. Currently, the stock trades for £9.89 and offers a juicy 5.61% dividend yield.

To target £100 in monthly passive income, I’d need to buy 2,163 National Grid shares for a total of £21,392.07.

Created with Highcharts 11.4.3National Grid Plc PriceZoom1M3M6MYTD1Y5Y10YALL11 Jul 201811 Jul 2023Zoom ▾Jan '19Jul '19Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '232019201920202020202120212022202220232023www.fool.co.uk

That’s a lot to invest in one company. As I don’t have that amount of spare cash, I prefer to spread my investments across multiple stocks to manage my risk exposure via diversification. After all, a fabulous dividend history doesn’t mean the stock’s immune to possible future dividend cuts.

Nonetheless, it’s a useful indication of how many shares investors need to secure the equivalent of a three-figure monthly income, especially for those managing larger portfolios.

Monopoly power

So, what makes the National Grid dividend special?

The company occupies a natural monopoly position. Energy companies can’t connect to the UK’s grid until the business enables this via transmission cables. Accordingly, competition risks facing the firm are lower than many of its FTSE 100 counterparts.

With its focus firmly on future opportunities, National Grid’s undertaken considerable work to pivot its business model away from gas towards electricity. Currently, its assets are weighted 70% on electricity, with only 30% now concentrated on gas. What’s more, the company expects it’ll deliver a record £8bn in capital investment this year as it decarbonises its energy networks.

Encouragingly, the dividend’s supported by strong numbers. Full-year revenue grew 17% to £21.7bn and underlying operating profit rose 10% to £4.6bn on an FX-neutral basis. The group expects it’ll deliver annual earnings growth between 6% and 8% from now until 2026.

Risks

Although monopoly power has advantages, it means National Grid operates in a stricter regulatory environment. Ofgem has criticised delays in the group’s efforts to connect solar farms and wind turbines to the electricity grid.

The regulator’s mulling reforms that could include stripping the company of its planning powers with regard to network upgrades. This serves as a reminder to investors that National Grid isn’t completely in charge of its own destiny.

In addition, although the group reduced its net debt by 4% to £41bn in the last financial year, that figure still looks too high to me. As interest rates continue to march higher, the cost of servicing these liabilities could weigh on profitability.

Should investors buy?

If investors are considering National Grid shares for their portfolios, dividends are the main appeal in my view.

Regulatory risks and concerns about the company’s leverage cloud the outlook for further share price growth, but management seems keen to preserve the group’s reputation as a passive income stalwart.

Regarding my own portfolio, if I had spare cash, I’d take a modest stake today.

Should you invest £1,000 in National Grid right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if National Grid made the list?

See the 6 stocks

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Charlie Carman has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

Here’s how a 40-year-old could start investing £100 per week to retire early

If a 40-year-old decides to start investing today, here's how they could potentially turn £100 a week into over £500k…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

The FTSE 100 is up 60% in 5 years. Here’s why — and a big lesson!

The flagship FTSE 100 index has put in a very strong performance over five years. There's a specific reason for…

Read more »

Investing Articles

How much do investors need in an ISA to earn a £2,500 monthly passive income?

Charlie Carman explores how investors could strive for £30k in tax-free passive income each year from a dividend stock portfolio.

Read more »

Investing Articles

How much would a 45-year-old need to invest in an ISA to earn a £1k monthly passive income at 65?

Harvey Jones looks at how much an investor would need to put away every month to build a steady passive…

Read more »

Investing Articles

3 things to do ahead of the new 2025-26 ISA year

It's time for us all to put on our investing boots and get to work on developing our plans for…

Read more »

Older couple walking in park
Investing Articles

Is £150,000 enough to generate £1,000 a month in passive income?

Stephen Wright takes a look at three UK stocks with dividend yields above 8% that passive income investors might be…

Read more »

Investing Articles

Aim to earn a £50k second income in retirement by investing just this much each month

Even with a small monthly investment, it’s possible to earn a £50k second income with a successful investment strategy and…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

Down 22% in a month! Is this my chance to buy shares in this FTSE 100 outperformer?

Shares in InterContinental Hotels Group have outperformed the FTSE 100 over the long term. So is a chance to buy…

Read more »