For a few years, some buyers have believed that utilities are a protected haven, with regulated costs and monopolistic markets hopefully permitting them to boost their dividends endlessly. However I don’t share that view.

SSE lower its dividend a couple of years again, as if to show the purpose, and I’ve lengthy had considerations in regards to the dividend payout sustainability at energy community operator Nationwide Grid (LSE: NG).

I’ve averted shopping for Nationwide Grid shares as a result of I feared its rising debt pile and excessive capital expenditure necessities meant it won’t be capable to continue to grow the dividend. It has aimed to take action on the identical fee of main measure of inflation, defending shareholders from the corrosive impact of inflation on the worth of cash.

Obscuring the unhealthy information

At present (15 Could), the corporate launched its full-year outcomes. It was an eventful 12 months, as the corporate issued new shares to bolster its stability sheet, diluting present shareholders. I see a threat it may try this once more in future given its £41bn internet debt.

There was excellent news on the dividend – or was there? Nationwide Grid trumpeted that it had once more raised its “rebased dividend” according to inflation. However wait – what on earth is a “rebased dividend”?

Simply go to web page 89 (!) of the outcomes and all is revealed: “As part of the Rights Issue, the Board announced that the overall cash dividend level would be maintained, with the additional shares from the Rights Issue resulting in a reduction to calculated dividend per share”.

Put merely, Nationwide Grid has raised how a lot it spends in whole on the dividend, however as a result of it issued a number of new shares as a part of the rights difficulty, there may be lower than final 12 months per share to go round.

I lack confidence in Nationwide Grid’s administration as a result of long-term development in debt mixed what what I noticed as an unrealistic dividend coverage. However my confidence is additional broken by what I see as a cynical and cack-handed try to obscure the unhealthy information in regards to the Nationwide grid dividend with this speak of a “rebased dividend“.

In actuality, there’s been a big lower

Consider it this manner, if I invite you to the identical picnic as final 12 months and pack a couple of extra sandwiches however have much more hungry mouths to feed, will you get roughly sandwiches at this 12 months’s picnic? No person I do know would say “I got more sandwiches than before, when rebased for the numbers of people at the picnic this year”.

The precise Nationwide Grid dividend per share has been lower by a fifth, to 56.72p from 58.52p final 12 months. Certain, shareholders who purchased extra shares within the rights points could have seen their whole dividend rise – however at the price of having to shell out more cash on these extra shares.

Nationwide Grid’s distinctive energy distribution community, established consumer base and pricing energy can all assist it do nicely in future, I reckon.

However the massive dividend lower, excessive debt stage and the way in which administration has chosen to speak what’s in actuality an enormous dividend lower imply I can’t be shopping for the share.