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Friday July 23, 2010
National Grid (NGG): High yield, stable growth
by Gerald Appel, editor Systems & Forecasts  National Grid (NGG) is Britain’s largest utility, and is also a major player in the Northeast U.S. as the result of its 2007 acquisition of Keyspan. Much of its business is in regulated markets, offering stability in sales and profits. The company more than earns its current dividend, and is expected to continue to do so. National Grid issued new shares this year to fund capital expenditures. This diluted future earnings, and contribued to this year’s 26% sell-off in the stock. 
Analysts are not excited about this stock because of the low growth potential, but nor are they alarmed. Sales and profit growth are expected to be modest according to Standard and Poors. Valuations are typical for the utility sector. The appeal of the stock is that even if the price goes nowhere, you can still earn the 7.7% dividend. Moreover, government regulators help make sure that the company remains profitable. However, nothing is guaranteed. National Grid’s share price has lost 26% this year. However, its chart suggests that a bottom is at hand. Volume has jumped as the stock stabilized around the $37 support area. The same thing happened (with a smaller volume spike) in March 2009. In addition, the MACD pattern is positive. This is a risky stock given the recent price hit, but potentially rewarding as a long-term holding for the dividend income. Investors who can stomach the risk can buy NGG at $39 or lower. Learn more about this financial newsletter at Gerald Appel's Systems & Forecasts. |
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