Interesting article on National Grid (NG.)

[funduffer]

See link below to an article by John Kingham (the UK Value Investor) on National Grid.

https://www.ukvalueinvestor.com/wordpre ... l-Grid.pdf

I hold in my HYP, and may top-up following its recent fall, or add SSE - still considering.

FD

[TUK020]

Funduffer,
thank you for that, excellent food for thought. I already hold a fair chunk of NG, but will think again about adding SSE
tuk020

[88V8]

According to Dividend Champions, NG hasn't cut its divi in 25 years, SSE for 16 years.

Topped up SSE last week, and bought a full tranche of NG today.

NG's cover is around 1.6 .
SSE, well, better not to think about it, really.

V8

[TUK020]

Maybe NG hasn't cut it's divi for many years, but not so long back, SP went through gyrations on rights issue to shore up capital.
Wondering when the same will occur with SSE.
When interest rates start to rise?

[Arborbridge]

SSE, well, better not to think about it, really.

1.3x

[Gengulphus]

According to Dividend Champions, NG hasn't cut its divi in 25 years, SSE for 16 years.

FWIW, I believe that the figure for SSE should really be 25 years as well, or possibly 24. In particular, I got 105 shares in Scottish Hydro-Electric when they were floated in 1991. SSE is the same company - it's just gone through a couple of name changes since, first to Scottish & Southern Energy on merger with Southern Electric in 1998, then to SSE in 2011 (see https://beta.companieshouse.gov.uk/company/SC117119 for confirmation of this). And the dividends I've received on those original 105 shares (*) are (for financial years ended on March 31st of the year concerned):

1992: £3.41+£7.26 = £10.67
1993: £3.78+£8.17 = £11.95
1994: £4.16+£9.11 = £13.27
1995: £4.56+£10.15 = £14.71
1996: £4.99+£11.56 = £16.55
1997: £5.54+£12.98 = £18.52
1998: £6.10+£14.28 = £20.38
1999: £8.09+£18.90 = £26.99
2000: £8.72+£20.16 = £28.88
2001: £9.45+£22.05 = £31.50
2002: £10.19+£23.84 = £34.03
2003: £11.03+£25.73 = £36.76
2004: £11.87+£27.72 = £39.59
2005: £12.81+£31.82 = £44.63
2006: £14.49+£34.34 = £48.83
2007: £15.86+£41.90 = £57.76
2008: £19.01+£44.52 = £63.53
2009: £20.79+£48.51 = £69.30
2010: £22.05+£51.45 = £73.50
2011: £23.52+£55.23 = £78.75
2012: £25.20+£58.91 = £84.11
2013: £26.46+£61.95 = £88.41
2014: £27.30+£63.74 = £91.04
2015: £27.93+£64.89 = £92.82
2016: £28.25+£65.63 = £93.88

That's 25 years of dividends without a cut or even a hold - or 24 successive year-on-year increases if one wants to count it that way.

The 16-year figure is probably related to the merger: shareholders just after it were very roughly as likely to have shareholdings that derive from a Southern Electric shareholding as ones that are renamed Scottish Hydro-Electric holdings. That means there are basically two different dividend histories from the merger backwards, and they're both relevant - the fact that one is technically for the same company and the other isn't is a detail of how the merger was structured, not anything very significant in investment terms. So no real criticism of Dividend Champions: I can understand people not wanting to try to keep track of multiple dividend histories and deal with the possibility that they'll give different years-without-a-cut figures!

Though the above figures from 1999 to 2016 all relate exclusively to the company after the merger. That's 18 years of dividends without a cut or hold and 17 successive year-on-year increases, so I'm still not entirely clear where the figure of 16 comes from...

(*) I've acquired more shares since! But I'm only counting the dividends on the original 105 here. And by the way, the reason that I'm presenting it as the monetary amounts on the dividends on those particular shares (rather than dividend/share figures) is that that allowed me to re-use an extract from https://web.archive.org/web/20121104181150/http://boards.fool.co.uk/the-main-objective-maybe-about-income-growth-but-12647295.aspx with only 4 extra years to add.

Gengulphus

[DYOR]

I have some concerns about the sustainability of National Grid's future dividends. Let's start with the positives. I can think of 2:

1. Great, simple business model
2. Part of its earnings are in USD, offering some reprieve for its predominantly USD denominated debt

My concerns are around the company's cash flows. I sourced the numbers below from the company's latest half-year results available from their website.

National grid had virtually no cash at 30 Sep 2016, nor 12 months earlier (see p.30). So what do it do cash flow wise in the first 6 months of the current financial year? In summary:

1. It generated £2.1bn of cash through its operations (down from the previous 6 months)
2. It then spent £1.9bn on capex (marginally up from the previous year)
3. It then repaid debt, paid interest and dividends amounting to £4.1bn. That left a shortfall of £3.9bn
How did it fund this? By taking on a further £4.8bn of debt

The difference between 1 and 2 above (£200m) meant that National Grid didn't even have enough cash to pay its interest, let alone the £900m dividend. The 6 months to 30 Sep 2015 wasn't quite as bad. Net borrowings increased by £600m to part fund the £800m dividend.

As at 30 Sep 2016, borrowings increased by c.£3.5bn, partly due to unfavourable fx movements (I presume debt is marked to market). £2bn of this number is fresh debt.

Operating profit was flat, cash flow from operating activities was down, and dividends were paid with new debt. This is simply not sustainable. Granted, the favourable impact of the USD/ GBP exchange rate will filter through in H2 for its USD earnings. However, the segmentation split of operating profit on p.33 indicates this is unlikely to offer a silver bullet.

The share price already fell 10% when the interims were announced. I suspect things are going to get worse before they get better. Annual results are announced on 18 May.

Disclosure: I hold no position in National Grid

[funduffer]

Presumably, in a case like this, we should pay more attention to cashflow as you have shown, rather than dividend cover (which is quoted as 1.5 historic and 1.4 forecast on DigitaLook)?

FD

[77ss]

I have some concerns about the sustainability of National Grid's future dividend

Disclosure: I hold no position in National Grid

I'm waiting to see what the position is after the partial sale of the National Grid Gas Distribution completes.

A hefty return of capital, presumably accompanied by a restructuring.

I would not be astonished to see a modest reduction in yield, but as my holding is going to be reduced, I am not too bothered. I've held for over ten years, and am happy (so far) with the outcome.

[kempiejon]

New dividend policy effective 1 April 2013 – aim is to grow ordinary dividend at least in line with RPI for the foreseeable future. http://investors.nationalgrid.com/our-i ... ition.aspx
Not one of mine, I have other utes though, CNA, SSE United Utiles and Pennon.

[idpickering]

I have some concerns about the sustainability of National Grid's future dividend

Disclosure: I hold no position in National Grid

I'm waiting to see what the position is after the partial sale of the National Grid Gas Distribution completes.

A hefty return of capital, presumably accompanied by a restructuring.

I would not be astonished to see a modest reduction in yield, but as my holding is going to be reduced, I am not too bothered. I've held for over ten years, and am happy (so far) with the outcome.

Likewise for me re NG. . I've had them for over ten years but am likely to top up my SSE holdings soon.

Ian.

[toofast2live]

Likewise for me re NG. . I've had them for over ten years but am likely to top up my SSE holdings soon.

Is that because you're full up with NG, or is it a presence for SSE. If the latter I'm interested in why you made that decision. I tend to favour NG because I think they're under a lighter "regulatory regime".

[idpickering]

Likewise for me re NG. . I've had them for over ten years but am likely to top up my SSE holdings soon.

Is that because you're full up with NG, or is it a presence for SSE. If the latter I'm interested in why you made that decision. I tend to favour NG because I think they're under a lighter "regulatory regime".

Likewise for me re NG. . I've had them for over ten years but am likely to top up my SSE holdings soon.

Is that because you're full up with NG, or is it a presence for SSE. If the latter I'm interested in why you made that decision. I tend to favour NG because I think they're under a lighter "regulatory regime".

Its because I have a full holding of NG. and only two thirds holding of SSE.

Ian