Upgrading the UK’s energy grid to satisfy the inexperienced power revolution will probably be eye-poppingly costly. Nationwide Grid (LSE:NG.) reminded the market of this final month: its £7bn proper challenge despatched its share price by the ground.

At 880.6p per share, the FTSE 100 firm is now down 17% because the begin of 2024. However I can’t assist however suppose that it’d now be too low cost to overlook.

Primarily based on predicted earnings and dividends, it appears to supply enticing worth to me.

Huge yields

Utilities shares like this are mainly in style due to the big and rising dividends they have an inclination to supply. Nationwide Grid is not any exception: it has elevated shareholder payouts in 13 of the previous 15 years.

Nevertheless, its proud run is poised to return to an finish because it rebases the dividend this yr. Money rewards per share will fall following the corporate’s resolution to challenge these new shares to fund its inexperienced progress plans.

But this isn’t a disaster for revenue chasers. Because the desk under reveals, the dividend yield on Nationwide Grid shares nonetheless smashes the FTSE 100 common of three.6% for every of the subsequent three years.

You’ll additionally discover that Metropolis analysts anticipate the dividend to begin rising once more from subsequent yr.

A pretty P/E ratio

The ability transmission enterprise gives stable worth in relation to dividends, then. However how does it stack up in relation to dividend forecasts?

As we speak, Nationwide Grid’s share price trades on a ahead price-to-earnings (P/E) ratio of 12.7 occasions. This doesn’t look too spectacular at first look: the Footsie common sits under this at round 11 occasions.

However there’s a few issues to think about right here. Throughout robust financial occasions like this, utilities firms are inclined to have extra secure earnings than the broader market. And traders are ready to pay a premium for this.

Nationwide Grid is required to maintain the lights switched on in any respect factors of the financial cycle. It additionally operates in a regulated business, which in flip supplies stable earnings visibility. And eventually, the corporate has a monopoly on what it does, offering earnings with further safety.

Primarily based on all of this, I feel a powerful case will be made that it nonetheless gives worth.

The ultimate factor to think about is how its P/E ratio appears to be like from an historic perspective. Over the previous 5 years, the a number of has averaged 18.9 occasions, suggesting that Nationwide Grid shares truly look fairly low cost.

Right here’s what I’d do now

As I say, investing for the clear power revolution received’t be low cost. And Nationwide Grid traders could also be hit with rights points and rebased dividends additional down the road.

But, on steadiness, I consider the potential advantages of proudly owning the utilities enterprise offset the dangers. Earnings might soar because it gears up for the expansion of renewable power, underpinning long-term progress within the dividend. At present costs I feel it may very well be a high cut price.