For years, Nationwide Grid (LSE: NG.) shares have been a mainstay for FTSE 100 earnings seekers. With its monopoly over electrical energy transmission in England and Wales and a sizeable presence within the US, the corporate has lengthy delivered reliable returns and beneficiant dividends.

However issues have shifted not too long ago and traders are proper to query whether or not the inventory nonetheless earns its preserve in a passive earnings portfolio.

Full-year outcomes

On 15 Might, Nationwide Grid revealed its full-year outcomes. Headline figures seemed robust – working revenue rose 10% and underlying revenue earlier than tax climbed 20%.

However beneath the floor, it wasn’t fairly the celebration earnings traders had hoped for. The board introduced a 20% reduce to the full-year dividend, slashing the yield from 5.5% to simply 4.5%. That despatched the share price down 5% on the day – a poor exhibiting in a month when the FTSE 100 climbed 3.2%.

For a utility inventory that many flip to for stability, that’s a warning signal. The present yield sits under the Footise common, and given the sheer dimension of the corporate’s capital funding programme, there’s little purpose to anticipate a fast reversal.

Valuation and outlook

That brings us to valuation. On the floor, the shares haven’t finished a lot — they’re up round 13% since 2022. However earnings have did not preserve tempo. Because of this, Nationwide Grid’s price-to-earnings (P/E) ratio has greater than tripled over that point, now sitting at 17.45. For a regulated utility, that’s not low-cost — and suggests the market is pricing in development that will show exhausting to ship.

The driving force behind all that is clear: an enormous £60bn funding programme geared toward upgrading infrastructure and accelerating the shift to Internet Zero. It’s an important mission, little doubt, and one which positions Nationwide Grid on the coronary heart of the UK’s vitality transition. However it’s additionally a expensive one. The corporate’s already needed to problem new shares and tackle extra debt.

Now, dividend cuts appear to be the newest a part of the trade-off, and there may very well be extra if earnings don’t enhance.

Unsurprisingly, brokers are break up. Some have downgraded their outlook, citing the diminished dividend and stretched valuation. Others, together with Deutsche Financial institution and Goldman Sachs, maintained a Purchase score in Might, suggesting confidence within the long-term fundamentals.

Nonetheless good for earnings?

For these constructing a portfolio centered purely on a excessive yield, the enchantment of Nationwide Grid shares has undoubtedly waned. At 4.5%, the yield now not stands out. And with extra engaging earnings choices elsewhere within the FTSE 100, the inventory could wrestle to reclaim its spot as a go-to earnings decide.

But regardless of the apparent challenges forward, the enterprise nonetheless operates in a tightly regulated setting which helps guarantee secure returns. It additionally performs a significant position within the UK’s vitality system – one which’s unlikely to decrease anytime quickly.

For traders with a very long time horizon and a willingness to simply accept decrease earnings within the brief time period, it’s nonetheless engaging. I consider that as a core infrastructure holding in a diversified, long-term portfolio, it stays one value contemplating.