When Nationwide Grid (LSE: NG) introduced a 20% dividend lower alongside a £7bn share challenge in Might, I used to be taken without warning. The utility group hadn’t lower its dividend for greater than 20 years. The dependable payout was the inventory’s primary funding enchantment.

In my opinion, shareholders have been comparatively forgiving. Nationwide Grid’s share price appears prone to finish the yr round 5% decrease, having recovered from Might’s lows.

In consequence, this FTSE 100 stalwart nonetheless presents a tempting 5% forecast dividend yield, even permitting for the diminished payout deliberate for this yr.

Because the yr attracts to an in depth, I’ve been taking one other take a look at this example. Can earnings traders like me nonetheless belief Nationwide Grid to supply dependable payouts?

A £35bn spending spree!

As a regulated utility, Nationwide Grid has to publish five-year spending plans which were agreed with regulator Ofgem. On 18 December, the corporate launched particulars of its plans for the interval from April 2026 to March 2031.

Nationwide Grid must improve its community to assist rising electrical energy demand within the UK and the fast progress in renewable power era.

The numbers concerned are pretty jaw-dropping. CEO John Pettigrew plans to spend £35bn over this five-year interval. It will embody 3,500km of overhead line upgrades, 17 new onshore transmission initiatives and connecting 35GW of recent era and storage.

Who pays for all of this?

Nationwide Grid generates earnings via regulated charges it costs to the power suppliers that use its community – firms like British Gasoline. As well as, the utility’s additionally capable of borrow towards the worth of its community.

Web debt‘s expected to be around £42bn at the end of March 2025. That’s in keeping with current years. But it surely’s nonetheless a hefty quantity that carried curiosity prices of round £1.4bn final yr – practically a 3rd of the group’s working revenue.

Brokers count on Nationwide Grid’s web debt to extend to almost £53bn by March 2027 to assist fund its spending plans. In idea, this borrowing might be supported by the elevated worth of its community, which ought to generate further earnings sooner or later.

Will the dividend be protected?

With such huge spending plans, will Nationwide Grid’s diminished dividend be protected? Dealer forecasts recommend that the dividend will return to progress of round 2% a yr from subsequent yr, rising from 46.4p per share for twenty-four/25 to 48.6p in 26/27.

That’s equal to a yield of 5% for the present yr, rising to five.3% in 26/27. That appears promising to me. Sluggish-but-steady progress’s what I’d hope for right here.

My solely concern is that my analysis suggests the corporate may have to make use of borrowed money to assist fund the dividend for a number of years whereas spending stays excessive.

This can be sustainable, quickly. However the monetary issues being confronted by some UK water utilities have made me extra cautious about this sector. I’m wondering if spending necessities might keep excessive for longer than anticipated.

On steadiness, I believe Nationwide Grid’s dividend might be protected in 2025 and doubtless past. But whereas I don’t consider this dividend’s fairly as enticing because it was, for somebody who needs a FTSE 350 utility inventory, I believe it’s price contemplating