As a dividend freeze sweeps the FTSE, will National Grid power up investors?


Spare the briefest of thoughts for Britain’s capital-owning classes. FTSE 100 companies are forecast to pay out £9.5bn less in dividends to shareholders for the 2019 trading year, according to investing platform AJ Bell, as the coronavirus crisis ravages their income. That’s 11% less money going to shareholders’ pockets compared with the previous year.

Some 48 FTSE 100 firms have announced some kind of reduction to, or suspension of, payments to shareholders, compared with 47 that have kept or increased them since the start of the year, AJ Bell says. Worse is expected, with National Grid’s delayed annual results statement on Thursday the latest date circled in red pen on the calendars of nervous investors.

Before the crisis, National Grid, the owner of the UK’s high-voltage electricity network, was trundling along, as utilities are wont to do (apart from British Gas owner Centrica). Profits of £2.47bn are expected for the year to 31 March, but that only includes eight days of the UK’s lockdown.

Beyond that, any detail on what to expect has essentially been limited to the investor equivalent of “here be dragons”. Financial performance was in line with previous guidance, according to the company’s last update in early April, with the glaring caveat that this was “before any Covid-19 impacts”. That leaves a lot of room for manoeuvre, and falling energy use during the crisis suggests National Grid’s customers, electricity generators, will have less to spend.

Given what is going on in health systems around the rest of the world, there are not violins small enough to mourn the losses of shareholders who miss out on a chunky cheque while they sit at home. But the dividend freeze taking over the FTSE 100 has broader implications.

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Simply put, what is bad news for infrastructure providers such as National Grid is also bad news for those who rely on their technology – which in the case of the electricity grid includes everyone in Britain save the odd apocalypse prepper. One would hope that it would cut short-term returns to shareholders before its £5bn annual investment needs are hit; but any historian of capitalism this side of the millennium would urge you not to take that for granted.

National Grid is one the companies most central to the UK’s net-zero ambitions. The UK’s energy network is changing shape, with coal and nuclear stations closing and vast wind and solar generation coming online. At the same time, the advent of battery electric vehicles – which could be the only option for car buyers by 2035 or earlier – means demands for electricity will be far greater.

A major irony of this squeeze is that the pandemic has given a glimpse – albeit at an intolerably high cost – of another world: one with less traffic, cleaner air, and radically lower carbon emissions. The concurrence of drastically lower energy usage and the sunniest and driest British spring since at least 1929 means the UK was, at the time of going to print, still setting a new record for the UK’s longest period of coal-free electricity generation since 1882, when a power station in Holborn, London, first fired up.

Yet the ominous signs for the future are already there. “We are starting to see some delays and disruption to our capital programme,” National Grid said in its April update. If the investment freeze caused by the pandemic worsens, it won’t just be shareholders who pay the price.

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