National Grid plc (NGG) is one of the largest utilities companies in the world. The company operates 4,300 miles of gas transmission pipelines, 93,800 miles of gas utilities infrastructure, and 71,000 circuit miles of electric utilities infrastructure. All of the company's operations are subject to rate regulations from the national governments of the United States and United Kingdom.
It is interesting when I am looking for a growing stock with a good dividend how many different dividends I can find for the same stock. Take a look at the yields I have found for this company:
- Dividend of 3.78% as a percentage of NGG's recent stock price of $53.40, says Forbes
- Dividend of 5.57%, from Dividend.com
- Dividend of 6.09%, by our own Kenyan Investor
- Dividend of 7.7%, article in Investopedia
While it was moving up, the stock had a huge reactionary dip to something.
Why did the stock drop?
The company announced plans for a $4.9 billion share sale to help fund the well-needed replacement of an aging infrastructure. It will sell shares through a "rights" issuance that will give the rights to those who own five shares of the stock to purchase two more shares. Angelos Anastasiou, analyst at Ambrian Partners, shared his opinion why the announcement was so pessimistically received.
"Many investors will feel misled by the management, who have consistently, and vehemently, denied the need for a rights issue."
National Grid's capital spending has steadily increased in recent years as the need for replacing "end of life" assets in the highly regulated business gets closer. 75% of the cash raised will be used directly in the U.K. as it is in the midst of modernizing its transmission system and also dealing with new plants. Several nuclear reactors will be going offline soon and it needs to make up the difference in energy levels. Modernization costs for National Grid are going to continue to rise, with total capital spending across the group expected to be about £22 billion over the next five years, compared to £14 billion in the previous five years.
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Well, the stock appears to be semi-invulnerable like so many defensive stocks with high yields that continue to grow. After a reactionary drop to the news that was sprung on them, it appears investors are getting back on board as the stock has just recently touched strong resistance. Now we will see if the stock can maintain its growing pattern. The RSI is slightly signaling a weakness in the last move up—even if it is slight. But there is no denying that it is there.
Bottom line for National Grid is that its expenditures will continue to rise over the next few years as a new infrastructure is put into place. In a highly regulated and price-controlled industry, they cannot just go out and make as much of a profit as they want. Capital expenditures on this level will possible plateau EPS growth for the near future. Not sure if it will but it is a good possibility. For this reason, there might be some better utility companies to look at right now if one is interested in an "income" investment.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.