1,043 National Grid shares could earn you £3,292 of passive income per year!

National Network (LSE:NG) shares paid a dividend of 58.52 pence for the fiscal year ended 31 March 2024. This represents a yield on the current share price of £10.55 of 5.6%.

The average, however, FTSE100 currently the profitability is 3.6% and FTSE250In the case of this country, the figure is even lower and amounts to 3.3%.

For £11,000 – the average UK savings – you could buy 1,043 shares in the electricity and gas transmission and distribution giant.

In the first year the dividend would be £616, rising to £6,160 after 10 years at the same average yield and then to £18,480 after 30 years.

The key to top up is back

This is clearly a better return than you would get from standard UK bank savings accounts. However, it could be much higher if you made one simple adjustment to your dividend payments.

More specifically, using them to buy more National Grid shares would deliver a much higher return than withdrawing those funds from your investment account each year.

This – known as ‘dividend capitalisation’ – could give you an extra £8,232 after 10 years, rather than £6,160. And after 30 years, at the same average rate of return of 5.6%, the extra return would be £47,791, rather than £18,480!

By then, the total investment of £58,791 would have produced an annual dividend income of £3,292.

What does business look like?

A company’s stock price and dividend depend on how its earnings grow over time.

For National Grid, the risks remain high, with investment required to maintain the current grid. Further significant funding is also needed for the energy transformation programme.

Still, the company expects the spending to boost asset growth to about 10% annually over the period.

In addition, consensus analyst estimates are for earnings to grow 11.8% by the end of fiscal 2027. Earnings per share are expected to grow 7.3% annually until then. And return on equity is expected to come in at 9.9% by then.

In its 2024 results, published on 23 May, underlying operating profit rose 4% year-on-year to £4.8bn, driven by revenue growth in its UK electricity transmission business and higher rates in its US operations.

In addition to its UK operations, the company has more than 20 million customers purchasing electricity, natural gas and clean energy in New York and Massachusetts.

Will I buy shares?

After I turned 50 a while ago, I focused on stocks that generate very high dividend income for me. These include: M&G, Phoenix Group Holdings, Legal and general informationAND circumcisionwith an average profitability of around 9%.

Therefore, it does not make sense for me to add National Grid on this basis at its current yield of 5.6%.

However, if I were earlier in the investment cycle, the company would be a much more attractive proposition to me.

In addition to its strong performance, I believe it also has strong growth prospects in the UK’s core infrastructure. Furthermore, I believe its investment in the global energy transition will pay off over time in the UK, US and European markets.

On this basis, I would buy it now if I were 10 years younger.