RD's Picks

While driving to church this morning, I caught part of The Wise Investor Show. The host was talking about dividend paying stocks and covered one of his company's recent recommendations, National Grid, plc (NGG). His summary was interesting enough to warrant a little more digging.

NGG is an international electricity and gas company with operations in Great Britain and the north east US. They're in the pipeline and transmission line business, so they make their money by carrying and delivering gas and electricity.

The company issued a management statement, similar to a quarterly report summary, on 31 Jan 08. They will be raising the dividend by 15% this year and are targeting dividend hikes of 8% each year through 2012.

Yahoo's financial statistics page shows a forward dividend yield of 3.2%. They got that by doubling the next scheduled dividend yield. The actual yield for this year will probably be higher since the final dividend payment is typically more than the interim. Like many European companies, NGG pays dividends semi-annually. The payout ratio is listed as 38%, which leaves a good cushion for growth, debt service and operations. The forward PE is shown as 13.2. The company has a market cap of a little over $40 billion, $4.3 billion of cash on hand and $37 billion in debt.

To summarize, dividend yield higher than a 5-year treasury, plenty of cash flow to cover the payout, plans to increase the dividend going forward, and a diversified revenue base. NGG fits the profile for companies I think should hold up well in a rough market. I'm not a technical analyst, but the chart shows two recent bounces off $75. I don't have this in my sloport or real holdings, but it looks attractive at the current price of just under $76 a share.

As I continue to increase my sloport exposure to solid dividend payers, I'll be looking to make some room for NGG.

Comments: View Comments |  Sunday February 10, 2008  |  Stocks: NGG,