Twenty years ago today (31 January) National Grid (LSE:NG) shares were trading at 389p. So if I’d taken £10,000 of my hard-earned cash, I’d have been able to buy 2,570 shares.
And what would they be worth today? It’s a pretty stunning figure, but more of that later.
First, I must point out that the shares pay a 5.8% dividend yield, which is already better than 82% of companies on the FTSE 100.
And as a long-term investor, the UK electricity grid operator has been a fascinating case study.
Britain’s energy regulator, Ofgem, allows National Grid to make profits in return for investing billions in infrastructure. The company can then return that cash to shareholders through dividends.
Phone a friend
I have a good friend, Liam, who works at National Grid as a systems engineer.
He gets awarded company shares through ShareSave. It’s a programme the company has been running for over 30 years.
Liam is a clever chap, as are most engineers. But he doesn’t have much stock market experience. So it was no surprise to hear him ask a common question. Are National Grid shares worth keeping?
Looking at the numbers, it’s no shock that 80% of those who start ShareSave keep hold of company stock.
Keep repeating
With National Grid shares trading 1,045p as of the end of January 2024, my 2,570 shares would have seen a capital gain of 172%.
That’s quite the tidy return, almost tripling my money with no extra effort from me.
So £10,000 became £27,200, right? Well — wait a moment. National Grid also pays its dividend twice-yearly.
With compounding, the investment would have been far more impressive. This is the snowball effect. The eighth wonder of the world, according to Einstein.
If I’d reinvested each dividend in more National Grid shares? It would have been a different ballgame entirely.
I’ve calculated that over 20 years I would have increased my shareholding from 2,570 to 7,398 shares.
And my initial £10,000 stake would be worth almost seven times more at £68,312!
That’s the real power of compounding over time.
With National Grid expected to pay 58.4p of dividends in 2024, my 7,398 shares would yield £4,320 this year alone.
Electrified future
National Grid looks to be a solid business. It’s already one of the UK’s best income shares, in my opinion. It also operates critical infrastructure.
Not only are there 10 times the number of electric cars on British roads than five years ago. With energy supplies in ever greater demand, National Grid’s future looks bright to me.
That’s why it makes sense to ignore headlines about day to day share price movements. If I’d let fear — instead of a long-term plan — guide me? I would have lost out on tens of thousands of pounds of profit.
And investing in National Grid shares 20 years ago looks like one of the best decisions I could have made.
Billionaire investor Warren Buffett likes to quote a famous Chinese proverb: “The best time to plant a tree was 20 years ago. The second best time is now.”
So in another 20 years? I’d say there’s a decent chance that by 2044, both I — and Liam — will have come to the same conclusion.
