The funding case for Nationwide Grid (LSE: NG) typically revolves round its dividend. As a utility, it has sturdy money move potential – and the corporate’s coverage goals to extend the dividend yearly in step with a number one measure of inflation. However that dividend focus doesn’t imply the Nationwide Grid share price doesn’t matter.

In spite of everything, if an investor buys a share and its price falls, he may finish up making an total loss when he involves promote, even considering dividends obtained alongside the way in which.

Then once more, the other may occur: an investor may finish up making a capital acquire because of share price progress, having additionally obtained dividends throughout the interval of possession.

I’m not anticipating a lot from this share price

Nonetheless, over the previous 5 years, the flagship FTSE 100 index of main shares has risen 33%. By comparability, the 8% progress within the Nationwide Grid share price throughout that interval seems to be underwhelming. What’s going on?

I reckon the share price motion has been underwhelming as a result of, frankly, the enterprise efficiency has been underwhelming. At a price-to-earnings ratio of 23, the share really seems to be fairly costly to me for what it’s.

The nice factors about Nationwide Grid as a enterprise haven’t modified a lot lately. It operates what is basically a monopoly community for vitality distribution. That may be a probably very profitable enterprise with long-term buyer demand.

However the much less compelling elements of the Nationwide Grid enterprise mannequin have additionally remained true lately. Costs are regulated and, crucially, the capital expenditure required to take care of not to mention develop the distribution community may be excessive.

So, I see no specific purpose for the share to soar any time quickly provided that state of affairs.

Is there long-term potential?

This week, the corporate introduced the sale of its onshore US renewables enterprise. That’s a part of its technique to deal with networks and streamline its enterprise.

At an enterprise worth of round $1.7bn, the money will come in useful. Within the first half of its present monetary yr, free money flows have been underneath £1bn – and that included a rights challenge that raised £7bn. With out that, the corporate would have recorded a big free money outflow.

Such fundraising strikes have helped the corporate hold spending on its community, which can assist assist future profitability. They’ve additionally enabled it to maintain elevating its dividend.

However the fee is shareholder dilution.

Certainly, one purpose the Nationwide Grid share price has considerably underperformed the FTSE 100 prior to now 5 years is as a result of every share now represents a smaller stake within the enterprise (and subsequently its earnings) than it did 5 years in the past.

This can be a cash-hungry enterprise. Though the rights challenge meant web debt was sharply decrease on the finish of the primary half than a yr earlier than, it nonetheless stood at £39bn.

I see a danger of additional rights points in future given the continuing capital expenditure and debt servicing necessities. That might dilute shareholders much more.

The dividend appeals to me, however the danger profile positively doesn’t. I cannot be including Nationwide Grid shares to my portfolio.