I always keep a list of shares I like the look of. And right now, I’m looking at potential buys for my Stocks and Shares ISA in 2021. I keep coming back to one key question: why do I not hold National Grid? The company repeatedly makes it onto my list of desirable dividend stocks. And the National Grid share price is down over the past 12 months, tempting me further.
In fact, looking back further, National Grid shares have lost 15% over the past five years. And during that time, the company has been paying a progressive dividend. Between 2016 and 2020, the dividend grew by 12%. That’s nicely ahead of inflation. And as long as the dividends are increasing in real terms, I wouldn’t be too worried about the National Grid share price weakness. If the dividends continue to grow, I’d expect the share price to come back.
I think the company has a couple of key strengths (although there is a potential weakness growing). One is that it has a monopoly on energy distribution networks. Whoever is competing with the latest offers on electricity and gas prices, National Grid takes its cut.
Visibility of earnings
The other key advantage is visibility. Few companies have such a clear view of their future streams of income than energy and utilities providers. This one also has a pretty good idea of its likely future expenditure. That enables it to pay a large proportion of its annual earnings out as dividends. And that reliability has surely been underpinning the National Grid share price for years.
But I do see some potential downside coming from the growing move away from fossil fuels. It shouldn’t have any effect on its electricity network. The electricity still has to flow, whether it comes from coal, oil, wind turbines, or solar panels.
But what about the gas network? There’s not going to be any solar gas entering the pipelines. And that part of the delivery network could become increasingly sidelined in the years ahead. Shifts away from gas and towards clean electricity may well be evened out. But decommissioning of gas networks and expansion of the electricity grid would cost money.
National Grid share price support
So would that take away from some of the cash available for dividends? And would any slowing of the firm’s progressive dividend policy damage the National Grid share price?
I think I’m probably being a little pessimistic here. I can see our gas usage declining, but only relatively slowly. And I expect it will be at a fairly predictable rate, allowing National Grid plenty of time to make the necessary changes.
So, I’m still seeing it as a good long-term ISA stock. And that’s especially true as I get older and move mainly towards investing for dividend income. On that front, dividend yields of better than 5% do make the National Grid share price look attractive.
Will I actually buy any for my 2021 Stocks and Shares ISA? Well, it depends on what competing buying opportunities there are out there. And right now, with the stock market still weak, I do see plenty of potential buys. Still, National Grid makes it to my shortlist.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.