Nationwide Grid (LSE: NG.) shares have lengthy been common with dividend seekers. The agency’s monopoly standing in energy transmission ensures constant demand whereas its regulated income results in secure earnings.

The FTSE 100 inventory at present carries a forward-looking dividend yield of 5.4%. How a lot earnings may that generate from a £20k funding? Let’s discover out.

Rights situation

Firstly although, any notion that Nationwide Grid is a gentle plodder throwing off rising dividends until the top of time was shattered in Might. The share price tanked nearly 20% within the days following a £7bn rights situation.

This gave shareholders like myself the best to purchase extra shares at a decrease price, particularly seven new shares for each 24 held.

The agency introduced: “Net proceeds…will principally be utilised to fund a higher growth investment phase for the Group, with around £60bn of capital investment expected during the 5-year period from FY25 to FY29.”

That is anticipated to drive underlying earnings per share development of 6% to eight% over this era.

Earnings potential

One consequence of this improve in shares is that the dividend has been rebased. This places the ahead yield at 5.4%, down from 6.6%.

So, how a lot may £20k earn again in passive earnings now? Nicely, on a 5.4% yield, the inventory may generate £1,080 in annual dividends.

That’s higher than the FTSE 100 common and broadly according to different utilities. However there are over 10 Footsie shares at present with increased yields. I wouldn’t make investments £20k into the inventory.

Ballooning debt

Like many stock-pickers, I preserve notes on all my investments. These comprise the explanation why I’m invested, with the form of returns I’m hoping for if issues pan out properly. Key dangers are highlighted to keep watch over.

The apparent danger with Nationwide Grid is its colossal debt pile. This has been rising dramatically in recent times because it builds new infrastructure, pays curiosity, and invests to decarbonise the vitality community.

In actual fact, internet debt has risen from £26.5bn in FY18 to £42.8bn in FY24 (which led to March). To be sincere, I can solely see it going increased over time.

For context, this deliberate £60bn in capital spending over the subsequent few years shall be greater than double what the utility large spent during the last 5 years.

One optimistic is that the agency does nonetheless have belongings to promote. It’s intending to dump its UK liquefied pure gasoline (LNG) facility and US onshore renewables operation. However as soon as it turns into a pure-play networks enterprise, what can it promote then? Additional money raises and even dividend cuts are a risk in some unspecified time in the future.

What I’m doing

Following the rights situation, many brokers have been busy readjusting their share price targets. At present, the consensus one-year goal is 1,102p, which is 24% above right this moment’s price of 887p.

After all, the shares could by no means attain such a price. However given this noticeably increased goal, I’ll let the mud settle and see how issues play out. I haven’t purchased extra shares and am not possible to take action.

General, I’m relieved the share price remains to be up over 5 years. Buyers have had a superb run of payouts, even by way of the pandemic. However I feel there are much better shares to purchase right this moment for dividend development.