I am on the lookout for the best UK shares to help make me a passive income from dividend payments. One stock I am considering for my holdings is National Grid (LSE:NG).
Power supplier
As a quick reminder, National Grid is the primary electricity system operator for the UK. Its remit includes ensuring homes and businesses across the UK have the power they need at all times. It also has an operation in the US where it provides similar services to 20m customers in Massachusetts, New York, and Rhode Island.
As I write, National Grid shares are trading for 1,080p. At this time last year, the shares were trading for 851p, which is a 26% return over a 12-month period.
Risks involved
I must note risks involved with National Grid shares. Firstly, dividend payments are not guaranteed and can be cancelled at any time due to market issues or poor performance.
Next, current rising energy prices in the UK could severely hamper investor sentiment. This would affect National Grid and other utilities stocks as well. Finally, regulation in the energy sector is very tight and can often change, which can lead to performance and returns being affected. In fact, National Grid recently challenged new regulation that could have an effect on shareholder returns.
A passive income UK share I’d buy
National Grid sports an enticing dividend yield of 5%. This is higher than the FTSE 100 average yield of 3%-4%. At current levels, the shares are trading at a fair price, in my opinion, with a price-to-earnings ratio of 27. In addition to its dividend yield, I can see that National Grid has increased its dividend payment for the past 22 years and the yield has never fallen below 3.5%.
National Grid’s performance, which leads to investor returns, has been consistent over the years. I do understand that dividend record and past performance are not a guarantee of the future, however. In it’s most recent half-year report, announced in November, it reported a pre-tax profit of £1.08bn due to increased performance. This is up 86% compared to the same period last year.
Finally, National Grid’s essential position in the UK’s infrastructure, as well as its overseas operations, give me confidence that performance should continue to grow in the years ahead. This will help shareholder returns to continue flowing and help me make a passive income. Furthermore, National Grid acquires businesses that can boost its offering and performance. An example of this is its acquisition of WPD, an electricity distribution business that boosted its half-year balance report recently.
Overall, I think National Grid is an excellent UK share with a good record of performance and dividend records. I believe its position in the infrastructure of the UK and potential for growth will boost performance. This in turn, will help make me a passive income for my holdings. I would add the shares to my holdings at current levels.
Jabran Khan has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
