National Grid (LSE: NG) (NYSE: NGG.US) shareholders were cheered today when the company said it had agreed UK price controls with Ofgem covering the next eight years. Although at first glance this may appear to be a somewhat obscure announcement, it's important for investors, as it has cleared the way for National Grid to set its new dividend policy.
For the current financial year, ending on 31 March, National Grid's plan is to increase dividends by 4%. This is down from its recent level of dividend increases, which has been 8%.
The new dividend policy will take effect from 1 April 2013, and National Grid said it expected to announced it on or before its next set of results are published on 16 May 2013.
Steve Holliday, chief executive of National Grid, said in response to today's news:
"I am pleased to confirm agreement of the RIIO price controls for our UK businesses. This is the culmination of a new process that started over three years ago, and represents another opportunity for National Grid to deliver further shareholder value.
These arrangements give our UK businesses their longest ever period of regulatory clarity. This enables us to focus on driving efficiency across our operations while building the infrastructure that the country needs and at the same time realise the benefits of excellent performance for both customers and investors."
Given that this was arguably the biggest uncertainty facing the company right now, the share price response seems rather muted, with a gain of just 1% to 730p. This is the highest level the shares have been for over four years, but it's still about £1 short of the all-time high set at the tail end of 2007.
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