- Despite being a utility with resilient earnings, it does not automatically make the high 8% dividend yield of National Grid safe nor sustainable in the long term.
- Their operating cash flow has not grown since the end of their 2018 fiscal year, which is problematic because their capital expenditure consumes virtually all of these cash inflows.
- This leaves their dividend payments reliant upon debt-funding, which has seen their net debt steadily increase.
- This has forced their leverage well into the very high territory and indicates that their operating model is not fundamentally sustainable.
- Sadly, this makes a dividend reduction likely since something must change and it remains the most likely lever to pull, which means that I only believe a neutral rating is appropriate.
For further details see:
National Grid: A Dividend Cut Appears Likely Despite Being A Utility