UK power network National Grid (NG.) gave income seekers a welcome boost on Thursday after recommitting to its RPI (retail price index) inflation-matching dividend increases promise.
The £33.3 billion company recommended a 32p per share final dividend, bringing the total shareholder payout for the year to 31 March 2020 to 48.57p, a 2.6% annual increase to match the UK RPI figure.
That should have bolstered market sentiment towards the stock, given the way investor incomes have been devastated by dividend cuts through the coronavirus outbreak.
Yet the share price stayed virtually flat at 950.4p, in tune with the wider market’s Thursday performance.
STEADY IN THE FACE OF ADVERSITY
National Grid delivered underlying operating profit up 1% to £3.5 billion, although statutory operating profit slipped 3% to £2.8 billion.
This was partly due to an extra £117 million provision in anticipation for increased bad debt in the US because of Covid-19. Various environmental costs and commodity pricing rebalancing also weighed.
The overall cost of the pandemic on National Grid this year will be enormous, with the company confirming that around £400 million will be wiped off operating profit this year (to March 2021), and up to £1 billion lopped off cash flow, an impact already largely anticipated by investors.
HUGE PANDEMIC REPERCUSSIONS
‘The impact from Covid-19 is set to be significant but also recoverable and does not change, in our opinion, the long-term prospects of National Grid,’ said analysts at broker Killik today.
‘We prefer other names in the utilities sector for their greater exposure to growth opportunities associated with global decarbonisation efforts,’ said Killik.
National Grid’s return on equity, a key measure of financial efficiency for investors, was broadly flat from a year ago at 11.7%, while net debt rose in the period from £26.5 billion to £28.6 billion.
