National Grid May Still Yield 5.6% After Revealing New Dividend Policy

LONDON -- The shares of National Grid climbed 8 pence to 759 pence during early London trade this morning after the FTSE 100 member revealed its new dividend policy.

National Grid, which operates the country's electricity transmission system, said its annual payout from 2014 onwards would rise at least in line with the Retail Prices Index measure of inflation.

Earlier this month, the Office of National Statistics revealed RPI inflation was running at 3.2%. The new dividend policy replaces National Grid's existing strategy of lifting the payout by 4% a year.

Steve Holliday, National Grid's chief executive, said: "I am pleased to confirm a new dividend policy that supports our long-term ambition to target a secure dividend in real terms for our shareholders while enabling the Group to sustain the strong balance sheet needed to fund the business."

Holliday also said funding for further business growth would be sourced from retained profits and additional net debt.

In addition, he claimed any dividend increases above inflation would be supported by "sustained outperformance" and would have no impact on the group's long-term credit ratings.

National Grid confirmed its final dividend for the year to March 2013 would reflect the existing 4% growth policy, which indicates a forthcoming final payout of 26.36 pence per share, a full-year dividend of 40.85 pence per share and a potential 5.4% income from the shares.

However, assuming RPI inflation stays at 3.2%, National Grid's dividend for the year to March 2014 should rise to 42.16 pence per share, which would push the share's potential yield to 5.6%

Of course, whether the new dividend policy, a possible 5.6% income and the general prospects for the regulated electricity sector all combine to make National Grid a buy right now is something only you can decide.

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