Questor: hold National Grid as it navigates Covid-19 with ‘no material economic impact’

Even for a company the size of National Grid, £400m is quite a lot of money. The sum represents the impact that the company, which announced full-year results yesterday, expects in the current financial year from Covid-19.

Although the firm is insulated from the full extent of the crisis because customers such as energy suppliers pay fixed amounts for the use of its network, additional expenses involved in operating during the pandemic do mount up.

Most of the Covid-related impact comes from National Grid’s American operations and relates to the deferral of price increases, the cost of measures such as extra cleaning and PPE and higher bad debt charges.

The £400m figure, which is the expected impact on underlying operating profits this year, should also be seen in the context of the £3.5bn the company made on that measure in the year to March.

And the shortfall should eventually be made up. John Pettigrew, the chief executive, said: “While Covid-19 will impact our financial performance in the 2021 full year, we expect this to be largely recoverable over future years and therefore anticipate no material economic impact on the group in the long term.”

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This is good news for those who rely on National Grid’s dividend, such as investors who follow our Income Portfolio. For the year to March the proposed payment rose by 2.6pc to 48.57p, supported by earnings per share of 58.2p on an underlying basis.

Profits before tax on the same basis rose by 1pc to £2.5bn although they slipped by 5pc to £1.8bn for statutory purposes.

The firm said it kept its dividend policy of linking the payment to inflation under review but announced no change to it. 

Questor says: hold

Ticker: NG

Share price at close: 949.4p

Update: Schroder Income Growth

There is reassuring news concerning the sustainability of this trust’s dividend: none of its top 10 holdings (measured at the end of April) has so far cut its divi, although one, BAE Systems, has deferred its payment. These 10 stocks account for 56pc of the portfolio, according to a note from Stifel, the broker, published on June 11.

As a result, said the firm, “we believe that the trust’s revenues will not be as badly impacted as the wider market”.

This is just as well because the manager of Schroder Income Growth, Sue Noffke, has noted that while dividends from British firms declined by 20pc from peak to trough in the 2008 financial crisis, she expects this year’s fall to be significantly worse.

The fund’s reserves, which can be used to boost its dividend, are equivalent to one full year of divis, which “should be sufficient to support a number of years of dividends uncovered by revenues”, Stifel said.

The fund is recognised as a “dividend hero” by the Association of Investment Companies, the trusts’ trade body, because it has raised its divi for 24 years in succession. “The board recognises the importance of this accolade and acknowledges that the revenue reserve is there to be used in lean times,” the broker said. This year’s dividend therefore looks certain to be raised. 

Questor says: hold

Ticker: SCF

Share price at close: 252p

Update: Inheritance Tax Portfolio

Last week’s column on putting Aim shares in a trust attracted quite a few emails from readers, some of whom were professionals in the field, who expressed doubts about the validity of the approach we outlined. This was that Aim shares could be put in trust as a way to cement the inheritance tax exemption the moment the two-year minimum holding period had passed and that it was not necessary to wait for the owner’s death for IHT-free status to be confirmed.

This column put the readers’ doubts to Kelly Greig of the law firm Irwin Mitchell, who had provided the expertise on which last week’s article was based. She explained to each of our correspondents, in detail and with great precision, why their doubts were misplaced.

Questor has complete confidence that the guide to the subject we published was correct, thanks to Ms Greig’s encyclopedic knowledge of her subject. 

Read the latest Questor column on telegraph.co.uk every Sunday, Tuesday, Wednesday, Thursday and Friday from 6am.