National Grid: should this FTSE 100 dividend be in your ISA?

National Grid: should this FTSE 100 dividend be in your ISA?

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National Grid plc is an electricity and gas utility company focused on transmission and distribution activities in electricity and gas in both the United Kingdom and the United States. For the fiscal year ended 31 March 2019, National Grid plc revenues decreased 2% to £14.93bn and net income before extraordinary items decreased 26% to £1.5bn. 

The utility company pays an attractive 5.7% dividend yield, but how secure is this payment to shareholders?

One of the quickest ways to kick the tyres on your current dividend generators is to look at the dividend cover (earnings per share divided by dividend per share). Dividend cover is the inverse of the dividend payout ratio. Dividend cover of two times or above is strong, but anything below one and a half times - as is the case for National Grid (LON:NG.) - should be stirring us to investigate in more detail.

What is National Grid’s dividend cover ratio?

A low level of dividend cover means that a small decline in earnings could consign your dividend payment to the scrap heap. When that happens, it is usually accompanied by a drop in share price value. With that in mind, let’s take a look at National Grid dividend cover.

We can get all the information we need to see if National Grid has an adequate level of dividend cover from the group’s StockReport. The group’s trailing twelve month (TTM) earnings per share were 44p and its TTM dividend per share was 47p. 

Divide the former by the latter and we get a trailing twelve-month dividend cover for National Grid of 0.93. This is below the 1.5 times cover limit that marks the point at which we should do some further digging on dividend sustainability and safety.


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National Grid's StockRank™

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National Grid's StockRank™

With a StockRank of 80, National Grid is more attractive than 79% of the 7,586 stocks we cover in Europe, according to our proprietary ranking system.

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