Get a 4.7% Index Linked yield and help keep the lights on...

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...with National Grid (NG.) who have reported half year results today. All pretty dull I know so I'll not dwell on the detail too much suffice it to say that they look after some of the electricity infrastructure in the UK and US and as such help us to keep the lights on, although there have been some scare stories about potential short falls recently. 

Thus National Grid performs a pretty essential service and has recently agreed a new longer term regulatory period in the UK as they are required to invest heavily in their networks. This is likely to lead to asset growth of 5 to 6% and if they can exceed the assumptions built into the regulation they may also achieve extra profits. Nevertheless they expect to be able to deliver as a minimum dividend growth in line with inflation for the next eight years or so covered by the latest regulatory review. As such they should be relatively immune to political interference - unlike the supply companies who seem to be the whipping boys of the industry and present popular targets for politicians to attack. The company themselves seem reasonably confident about the outlook as the chief executive Steve Halliday said:

"Our UK businesses continue to deliver strong performance within their clear, long-term, regulatory arrangements. We expect to deliver overall improvements in both totex and revenue incentive outcomes this year compared to 2013/14. In the US, the outlook for additional asset growth is increasingly positive and we are taking further action to drive operating cost efficiencies, file for incremental allowances where possible and prepare for future regulatory filings in Massachusetts and New York.

Our attractive combination of performance, investment and financing discipline should, again, deliver good asset growth this year along with a healthy balance sheet. This provides strong support for our policy of sustainable dividend growth, at least in line with RPI inflation, for the foreseeable future."

They have also announced in a separate announcement today a JV with Berkeley Group (BKG) to build houses on some of their surplus brown field land in the south east of England which should go down well with the authorities and probably be quite lucrative for them.

So based on this years possible dividend of around 42.7 pence (based on the 1.5% increase in the interim versus market forecasts of up 3%) they yield around 4.7% at 918 pence and this should grow in line with inflation or may be slightly ahead in the next few years - not too bad if you are prepared to take some equity risk on board. However, the shares have done quite well this year as the broader market has flattened out and they have got close to over bought short term as investors have perhaps switched more defensive during the recent volatility. So while I wouldn't put you off buying them for the 14.71 pence interim and for the yield in the longer term, if you are patient you may get a slightly better entry point or not as the case may be.

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