National Grid plc and Centrica plc are still great investments!
If we could examine the portfolios of the UK's stockmarket millionaires, I'd wager we'd find a decent chunk of National Grid(LSE: NG) shares in a good few of them. The reasons are not hard to see.
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National Grid has just revealed its results for the year to March 2016, and once again the company's predictable business meant that shareholders knew pretty much exactly what to expect -- they saw a 6% rise in adjusted operating profit and a 19% rise in adjusted earnings per share to 63.5p.
That led to a 1.1% rise in the full-year dividend to 43.34p, which might not sound a lot but it's ahead of inflation. It was actually slightly down on predictions and is possibly the reason behind the 2.7% fall in National Grid shares on the day so far, to 972p, but it would still yield 4.5% on the current share price.
Set for growth
Chief executive John Pettigrew reckons that National Grid is "well positioned to deliver asset growth in 2016/17 and beyond", and I don't think many would disagree given the company's track record.
Dividend growth has been going on for years, and the only reason the yield has dropped a little in recent years is the steady rise in National Grid shares. Over the past five years, the price is up 58% to 977p, and when we add total dividend cash of 166p over that period, we're sitting pretty on a total return of nearly 85% -- and if the dividend cash had been reinvested in more National Grid shares, it would be even higher!
The whole business of supplying energy is a very profitable one, and at Centrica(LSE: CNA) we're seeing another good example of a solid dividend-paying company -- though in this case, a fall in the share price could be providing us with a very nice recovery prospect, too.
Centrica's dividend yield for the year to December 2015 came in at 5.5%, and there's a nice hike to 6% currently forecast for 2016, even though there's a 12% fall in EPS expected -- but there's a 3% recovery on the cards for 2017.
Falling shares
So why have Centrica shares fallen by 37% over the past few years, to 201p? Well, Centrica did have to turn to an equity issue earlier this month to raise a bit of cash as its debts have risen to £4.4bn. Some of the cash raised, however, was to fund the firm's continued acquisition plans, and only this week we heard of the purchase of ENER-G Cogen International Limited for £145m.
The equity issue was fully placed with institutional investors, and they clearly don't seem worried about it. And with the shares on a forward P/E of around 13 and those big dividends looking good, I don't think we should be either.
Although the total return from Centrica shares over the past five years, including dividends, has only come to 37%, I still see the owner of the British Gas and Scottish Gas brands as a good long-term investment.
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Centrica. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
