This Energy Company Ruined My Saturday Night

I was sitting at Mackenzies Bar & Kitchen on the canal in Bristol, UK, with a friend. Just before 7pm, she got a text from her boyfriend Steve: “the power is flickering here.”

He was at The Louisiana, a live music pub, getting set up to play a reunion gig with his band Bang Wallace. Although we all had other adventures planned here in the UK, this was the original catalyst for us to meet up “across the pond.”

We finished up and made our way over to the venue and were greeted by two National Grid service trucks parked out front.

Apparently, they would be cutting the power in an hour or so, completely unfazed by the sold out show about to happen. Don’t they know we traveled over 5,700 kilometers to see this show?

The band did get to play for 20 minutes on that Saturday night. And everyone finished their drinks outside on the picnic tables. We did get to see the planned 90 minute set on Sunday afternoon.

The whole experience got me thinking about whether National Grid plc (NGG) could be a good investment right now—especially since I’ve recommended it to readers in the past.

Picks and Shovels

AI speculation is a force to be reckoned with. So much so, it’s the single largest driver of US equity returns over the past year. Most of us are sold on the idea that AI and data centers will be a part of the future… we just disagree about how integrated it should be.

It’s fun to speculate, but when I invest, I want something more reliable. During the California gold rush, many gold miners failed to strike it rich. Companies that sold picks and shovels to the miners, however, made a nice profit. That’s why I continue to look at utilities.

No matter what the future of AI or data centers looks like, it’s going to require a heck of a lot of energy. Those big, boring, recession-resistant dividend payers are now looking a lot more exciting.  

The UK has over 500 data centers concentrated in areas like London, Slough, and Manchester. There are dozens of suppliers who sell electricity in those areas, but only one that owns the wires and infrastructures. Can you guess?

NGG’s grid covers most of Great Britain and connects to Northern Ireland, France, Belgium, the Netherlands, Norway, and Demark. It also has distribution networks in New York, including upstate, central, and Long Island, as well as Massachusetts. And it plans to keep expanding.

NGG has committed roughly £35 billion ($46 billion) from 2026 to 2031 to connect major power consumers like data centers and gigafactories to new generation sources like wind and solar.

One example is the 116 turbine Rampion Offshore Wind Farm that I could see from my hotel window in Brighton Beach.

The UK government has proposed reforms that would prioritize strategically important energy projects to support AI, which includes grid capacity.

The potential is there, but is it a good investment?

A Choice That’s More Than It Seems

Over the last year, NGG invested a record £11.6 billion ($15.4 billion) in networks and other energy infrastructure. Its asset base grew by 10.9% while increasing underlying operating profit to £5.7 billion ($7.5 billion). Earnings per share (EPS) rose 8% in constant currency and hit management’s expectations.

Looking at the dividend, the company pays two different amounts biannually. The last two were $2.1738 and $1.0657, resulting in a dividend yield of 4% at current prices. But there’s more to it than that.

NGG offers a “scrip dividend.” This gives investors the option to receive additional company shares instead of a cash payment. This option lets NGG keep its cash to fund growth. Either way, shareholders are still rewarded.

Some of you have already spotted the dilemma here.

If everyone opts to take shares your percentage ownership remains the same. But if you choose cash while other shareholders take scrip, your slice of ownership shrinks a little since the number of shares outstanding is expanding.

Scrip shares are created out of thin air, an action known as dilution. Company earnings and in turn share prices need to keep increasing at a pace faster than the dilution—which looks probable for the foreseeable future.  

I’m glad to see NGG back on my radar. I will continue to watch the data center and renewable energy markets in the UK. I’ve been following the story in the US and looking for the appropriate investments for a few years. It’s easy to overlook other opportunities if they aren’t right under your nose.

This is another stock (and trend) worth adding to the watchlist, but it does not scream “buy” to me just yet.

For more income, now and in the future,

Kelly Green