Picture supply: Nationwide Grid plc
Currently, it appears Nationwide Grid (LSE: NG.) shares have quietly shifted from a gentle FTSE 100 earnings choose to a progress play. The yield has dropped under 4% whereas the share value is up 24% up to now 12 months.
The important thing issue driving this seems to be a ‘sell shovels in a gold rush’ narrative — solely it’s shovels are electrical energy infrastucture. Vital funding is being spent on {hardware} to help electrical autos (EVs), datacentres and renewable power tasks.
However that form of transition comes with basic dangers traders can’t ignore. So what does this imply for current shareholders and new traders alike?
From bond proxy to web‑zero progress engine
Nationwide Grid’s £60bn 5‑12 months funding plan is designed to construct {the electrical} spine for a digital, electrified, web‑zero financial system. Round 80% of that capex goes into electrical energy networks, with roughly £51bn aligned to EU Taxonomy‑outlined inexperienced tasks akin to renewables connections, grid reinforcement and EV charging infrastructure.
In different phrases, slightly than investing in a single inexperienced power play, traders are backing the regulated infrastructure that every part else plugs into.
And the expansion story is already displaying up within the numbers. Final 12 months’s efficiency was powered by earnings progress of 36.2% 12 months‑on‑12 months, as new {hardware} helps increase its regulated asset base and improve returns. For a utility that used to commerce primarily on its dividend, that may be a huge narrative shift.
However there’s extra to the story…
The valuation and earnings commerce‑off
The flip aspect is that Nationwide Grid now appears to be like extra like a progress utility on valuation too. The inventory trades round 15 instances ahead earnings, a premium to many conventional earnings‑centered utilities. That places it in an unusually overvalued place, given its regulatory and political dangers.
On the similar time, dividend protection is slim for an organization with such a heavy capex schedule. Current outcomes confirmed full‑12 months dividends lined about 1.6 instances by underlying earnings, which is enough however not bulletproof. Money‑move metrics are even tighter: some estimates put the mixed dividend and capex protection ratio under 1, implying Nationwide Grid could have to lean on debt or promote property to completely fund each funding and shareholder returns.
Even the steadiness sheet is wanting extra like that of a progress inventory. Debt stands at roughly £47bn in opposition to fairness of round £38bn and is predicted to rise additional because the funding plan progresses. For now, curiosity is sufficiently lined however this might pose a threat to dividends if earnings slip.
So are Nationwide Grid shares nonetheless price contemplating in 2026?
For traders bullish on the digital/renewables narrative, Nationwide Grid is price contemplating as a low-volatility option to acquire publicity. Successfully, it gives each earnings and progress potential however in a extra regulated manner. Somewhat than taking over direct challenge or know-how threat.
Nevertheless, right now’s set‑up is much less ‘stable income’ and extra ‘growth at a price’. With the shares up and the yield down, earnings traders could also be deterred. That doesn’t make a foul choose, however it arguably shifts it extra towards the ‘high risk/high reward’ bucket.
For traders comfy with the danger, Nationwide Grid can nonetheless be a stable core holding to discover in a diversified portfolio. However these in search of actual worth, there could also be higher alternatives in lesser-known, energy-linked names that the market hasn’t priced in but.
