Earlier than I make investments any hard-earned cash in a inventory with the goal of securing long-term passive revenue, I prefer to run by way of a number of guidelines gadgets.

Not the whole lot will come out tops on each one. However the extra passes than fails the higher, and it helps me kind my choices into some sort of precedence.

I’ll run by way of it immediately with a inventory from my candidates listing, Nationwide Grid (LSE: NG.)

Examine 1: dividend

Is a dividend important? Anybody who purchased Rolls-Royce Holdings shares in 2020 might promote some for money now. They usually’d probably get extra passive revenue than from 20 years of Nationwide Grid dividends.

However dividend shares are typically much less dangerous and require much less consideration. I purchase shares within the hope of by no means having to consider when to promote.

Nationwide Grid has a forecast dividend yield of 4.3%. It’s not the largest within the FTSE 100, however it’s affordable and it passes examine #1.

Examine 2: cowl

I need to really feel moderately assured that an organization can hold paying its dividends from earnings.

Nationwide Grid hasn’t all the time managed to do that. However over the long run, we’ve seen earnings overlaying the dividend round 1.1 to 1.2 instances, reaching 1.3 instances for the 2025 yr simply ended.

Once more, that’s not the very best. However there’s good long-term earnings visibility, which might imply much less earnings security margin wanted. Examine #2 is nice sufficient for me.

Examine 3: historical past

Saying that, 2025 cowl was greater as a result of the corporate reduce its dividend per share. The whole money payout was the identical, however final yr’s shock fairness increase to generate new capital meant extra dilution per share.

Previous to that we’d had a few years of strong progressive dividends. And I might, maybe naively, have thought a reduce was close to unimaginable. I now concern the potential of additional fairness points inflicting extra dilution. I’m uncertain, so I’ll go 50/50 on #3.

Examine 4: forecasts

Wanting ahead, the corporate has reiterated its goal to pay extra in dividend money annually. And forecasts presently bear that out, displaying 1.8% and a pair of.2% will increase for 2026 and 2027, respectively. They’re not large jumps, however ought to hopefully match inflation.

I’d ideally prefer to see few extra years of Nationwide Grid again to progressive dividends with none additional dilution. However I give it a cautious move on #4 for now.

Examine 5: debt

I all the time examine debt for each firm I take into account, as it may affect the dividend throughout a troublesome spell. Nationwide Grid’s internet debt reached £41.4bn in 2025. And it’s forecast to succeed in as excessive as £52.8bn by 2027, for a 27% enhance in simply two years. Examine #5 is a transparent fail.

Verdict

These checks aren’t complete. And each firm may have its personal particular dangers which we actually want to research. However I see this as a helpful begin.

I’ve typically considered Nationwide Grid as presumably the very best dividend inventory I’ve by no means purchased. Nevertheless it solely scores 3.5 out of 5 (and a type of is cautious). I nonetheless assume passive revenue buyers ought to take into account it. However within the brief time period, different shares rating higher on my guidelines.