For the first time in months, the power cut out during a reunion gig in Bristol. I was at Mackenzies Bar & Kitchen with a friend when she got a text from her boyfriend Steve. He was at The Louisiana, a live music venue, getting set up to play with his band Bang Wallace. Just before 7pm, the message read: “the power is flickering here.”
We finished our drinks and made our way over to the venue. Two National Grid service trucks were parked out front. The crews planned to cut the power in an hour, completely unfazed by the sold-out show about to begin. We had traveled over 5,700 kilometers to see this reunion, but the grid maintenance schedule didn’t care.
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The band still managed to play for 20 minutes that night. We finished our drinks outside on the picnic tables. Although the original 90-minute set was pushed to the Sunday afternoon, the experience got me thinking about the company behind the infrastructure. I’ve recommended National Grid plc (NGG) to readers before, and this weekend offered a fresh reminder of why that relationship exists.
Looking at the numbers from the last year, the company 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.
Buying the Shovels
AI speculation is a force to be reckoned with. It is 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, but we 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.
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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. 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.
The Growth Play
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.
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For investors, the dividend is a key component of the appeal. The company pays two different amounts biannually. The last two payments 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. 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.
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