Have National Grid shares actually been a good investment in recent years though? Letâs find out by looking at how much money Iâd have today if Iâd bought Â£5k worth of shares five years ago.
Have National Grid shares delivered?
Five years ago, on 14 November 2017, National Grid shares closed at 884p (Iâll use this as my starting price). Today however, theyâre trading at 996p â roughly 12.7% higher. This means that if Iâd invested Â£5,000 in the stock, my capital would now be worth about Â£5,633.
Of course, we also need to factor dividends into the calculation. With high-yielding stocks like National Grid, dividends can make a huge difference to overall returns.
Looking at the stock’s dividend history, I calculate that if I’d bought shares five years ago, I would have received a total of 257p in dividends per share by now. That works out to around Â£1,454 in income, assuming I didnât reinvest it.
Combine the capital of Â£5,633 and the dividends of Â£1,454 and Iâd have about Â£7,087. That equates to a total return of about 42%, or 7.2% per year, over the five-year period.
Is that a decent return? In my view, yes. Itâs a far higher return than I would have got had I left that Â£5k sitting in my bank account. For most of that five-year period, savings accounts were paying 1% or less (shares are riskier than cash savings though).
Itâs also higher than the return I’d have generated had I bought a FTSE 100 tracker fund. Had I put Â£5k into a Footsie index fund five years ago, my investment would now be worth about Â£5,930 (ignoring platform fees).
Of course, itâs not a super high return. Other stocks have delivered much higher returns. However, itâs certainly respectable.
If you earn 7.2% per year on your money consistently, the chances are youâll do quite well for yourself over the long term.
Dividend stocks can be good long-term investments
One takeaway from looking at the performance of National Grid shares is that itâs possible to generate solid investment returns by buying âboringâ dividend stocks and holding them for the long term.
National Grid is not an exciting, disruptive company like Tesla, NIO, or Amazon. Itâs a utility company that is focused on the transmission and distribution of electricity and gas and pays a regular dividend. You could say it’s ‘old school’.
Yet it has still delivered very respectable investment returns over time. In fact, it has actually delivered better returns over the last five years than a lot of popular growth stocks such as Meta Platforms, PayPal, and Boohoo.
Iâll be keeping this in mind as I continue to build up my own stock portfolio.
Should I buy?
Would I buy National Grid shares for my own portfolio today?
Well, I can certainly see some appeal in them right now. They’re defensive in nature and the yield is attractive.
However, one thing that turns me off is debt (Â£43bn) on the balance sheet. This could present challenges in a rising-rate environment.
So, they stay on my watchlist for now.
The post If Iâd invested Â£5,000 in National Grid shares 5 years ago, hereâs how much Iâd have now appeared first on The Motley Fool UK.
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Ed Sheldon has positions in Amazon, PayPal Holdings, and boohoo group. The Motley Fool UK has recommended Amazon, PayPal Holdings, Tesla, and boohoo group. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Foolâs board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.