The London Stock Exchange is home to dozens of high-yield dividend stocks. A significant amount of these have been producing healthy passive income streams for investors for many years.
One stock that I own in my income portfolio is National Grid (LSE: NG.). This is a regulated monopoly that owns and operates energy transmission networks across the UK and North-Eastern US.
In the UK, it maintains over 10,000 miles of overhead electricity lines, underground cables and high-pressure gas pipes. And a fair chunk of the profit it’s allowed to make by the energy regulator is dished out in dividends.
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?
But what if I were to invest £10,000 in this FTSE 100 stock today? How much passive income could that potentially generate for me?
Let’s take a look.
Excellent track record
Today, the National Grid share price is 1,048p. That’s 26.75% higher than it was five years ago.
On a price basis, that means it’s actually outperformed the FTSE 100 over that period. Just writing this fact keeps me motivated to continue picking stocks rather than investing passively!
National Grid was one of a select few companies that continued raising its dividend during the pandemic.
| Fiscal Year (ending 31 March) | Dividend per share |
| 2024 (forecast) | 57.9p |
| 2023 | 55.4p |
| 2022 | 51.0p |
| 2021 | 49.1p |
| 2020 | 48.6p |
| 2019 | 47.3p |
That said, past performance is no guarantee of rising future income. All dividends can be cut or cancelled, even by seemingly stable utility companies.
Passive income generation
The stock carries a dividend yield of 5.28% today. That handily beats the FTSE 100 average of 3.7%.
And it means I’d hope to receive passive income of £528 from a £10,000 investment, based on FY2023’s dividend of 55.4p per share.
If the forecast dividend of 57.9p per share is met this year, I’d get £552. This isn’t set in stone though, as analyst forecasts can sometimes be way off the mark.
Uncertainty brewing
Now, over the medium term, I think there are a couple of potential concerns for investors here.
First, the government announced last year that National Grid will be partly nationalised in order to help reach net-zero targets. Under the plan, a division responsible for managing the grid’s supply and demand across the country will be returned to public control by 2024.
The company will be “appropriately compensated” for this, according to the government.
However, some opposition politicians and campaigners are calling for the entire organisation to be nationalised. Unite, Britain’s largest union, said National Grid was a “state-sponsored cash machine”.
Needless to say, if the idea of nationalisation gains traction, it could cause significant volatility in the share price.
Appropriate sizing
Defending itself against critics, National Grid has pointed out that it has committed to almost £30bn of green capital expenditure between 2022 and 2026.
This brings me to a second concern, which is the £40bn of net debt currently on the balance sheet.
This sum has ballooned in recent years as the firm has acquired additional electricity distribution assets and funded infrastructure upgrades. In the long run, this debt could threaten the sustainability of the dividend.
As such, I’m going to hold my position in the stock as I search for more attractive passive income opportunities.
