UK Edition
Questor: National Grid is in politically choppy waters, but its index-linked income is precious
National Grid's half-year results are reassuring in that the dividend promise – maintaining payouts that rise in line with inflation (as measured by RPI) – was reaffirmed.
An interim dividend of 15.49p will be paid in January.
That is in line with the previous year's first payment and, all else being equal, we could expect a final payment of around 30p.
Well-run, and rising payments We bought at £10.58 in Oct 2016, since which time we've been paid 15.17p and 29.10p dividends. Somewhat muddying the waters, a 84.375p special dividend, coupled with a share consolidation, was effected in the summer.
The business's commitment to index-linked dividends was not in any doubt, but National Grid operates in a difficult and highly politicised sphere and the clouds are massing. This is why it was good to read again that the "policy is to grow the ordinary dividend per share at least in line with the rate of UK RPI inflation each year for the foreseeable future".
The yield at purchase was 4pc – based on the full dividends paid in the year ending March 2016 – and it is now considerably higher, nearing 5pc.
One part of the explanation for this is the alarming political outlook in which both the Conservatives and Labour appear – in different ways, both potentially destructive – to have energy firms within their sights.
Labour has said taking energy firms back into public ownership will save households £220 per year, and last month it declared that "households are being ripped off with sky-high bills for energy to pay out billions of pounds to shareholders".
A Labour government wedded to this view would doubtless hurt NG's value, irrespective of what eventually transpired. The company is keen to stress that US growth – which, with profits up 13pc was a highlight of the results – demonstrates a diversifying business and a reduction in domestic political risk. What is not in doubt is that revenues in American dollars are useful and will become even more helpful if sterling weakens further.
But the emphasis on overseas operations feels somewhat hopeful, given that British electricity transmission makes up 40pc of profits. Together with gas transmission, half the group's profits originate here. The market appears generally unimpressed with National Grid but, given these risks, the shares are not cheap enough to mark it a "buy".
For this portfolio – where the aim is to deliver a sustainable income of 5pc – it remains a "hold".
Questor says: hold
Ticker: NG
Closing price: 904.2p
UPDATE: Dairy Crest
Happier news yesterday in the half-year results for Dairy Crest, which we bought at 605p – also in October 2016.
To date, it has been one of the portfolio's weaker performers (losing 2.4pc of its capital value in the year since purchase) but was selected for its growth potential and dividend focus.
The market hasn't loved it, but the growth is coming through. Three of the dairy company's four key brands – Cathedral City, Clover, Frylight – recorded year-on-year growth in sales. Only Country Life, the butter, saw volumes fall during the period.
Flagship cheese Cathedral City (by far Britain's bestselling cheddar) increased sales by 10pc and grew its market share by 1pc.
There is plenty of room for future growth, however, as more than 65pc of the everyday cheese market is still accounted for by supermarkets' own brands. Part of the firm's appeal was the steps it has taken to slim down the business – it sold dairies to Muller in 2015. The results also reveal the progress management has made in containing the costs and risks of the staff pension scheme.
Unlike many other firms, Dairy Crest has managed to eradicate the scheme's funding deficit.
It turned last year's £120m funding shortfall into a £40m surplus, mainly by moving to the lower CPI index as the preferred inflation measure for increasing pensions in payment.
Markets were largely unmoved by the results, which were broadly in line with expectations. Investors appear to be concerned (overly so, perhaps) about the growth prospects after Brexit for British firms with little or no overseas earnings.
The next payable dividend, due in January, will rise from 6.2p per share to 6.3p per share.
Questor says: hold
Ticker: DCG
Closing price: 581.5p
questor@telegraph.co.uk