National Grid (LSE:NG.) raised its Interim Dividend on 5 November alongside a sharp increase in half-year Earnings and record Capital spending. The utility's inflation-linked payout policy gives shareholders a clear framework, but the sheer scale of its Investment programme is what will decide how comfortably that promise can be kept. Understanding how the formula works, and why cover is thinner than in many sectors, helps put the latest figures in context.

The numbers in context

As of 7 October 2026, National Grid had an annual dividend of 48.5p per share and a latest payment of 32.1p, which was the final dividend for the 2025/26 financial year. The trailing 12-month Yield was 4.2% and the indicated yield was also 4.2%, a solid income by the standards of the index.

Dividend growth of 3.8% year on year reflects the policy of raising the payment in line with UK CPIH inflation, keeping its real value broadly flat. The Payout Ratio of 74.3% implies earnings cover of about 1.3 times. That is thin compared with many sectors, but it is typical for a regulated utility, whose revenues are comparatively predictable. Regulators set the returns that network owners may earn on their asset base, which reduces the swings in profit that make a high payout risky for a cyclical business.

The streaks need some explanation. National Grid has paid dividends continuously for 32 years, but only one year of consecutive growth is recorded. That is short for a company with such a reputation for steady income, and it follows the rebasing of the dividend that accompanied its 2024 rights issue. The record of growth, in effect, restarted from that point.

The new interim

The half-year statement brings a newer figure. The board declared an interim dividend of 16.97p per share, up 4% from 16.35p a year earlier, set at 35% of the prior year's full dividend. The shares go ex-dividend on 19 November, with a Record Date of 20 November and payment on 12 January 2027. A scrip alternative is again being offered, which lets shareholders take new shares instead of cash and allows the company to retain more money for investment.

Formulaic interim dividends like this give investors predictability. They also mean that the half-year figure says little about current trading, since it is determined by the previous year's total. Applying 35% to the prior-year total of 48.5p gives the declared amount almost exactly, which confirms that the interim is a mechanical step rather than a fresh decision on the year's payout.

Earnings surge and heavy investment

Earnings were a good deal firmer than the dividend growth. Underlying Earnings Per Share rose 22% to 36.5p, from 29.8p, while statutory earnings per share were 26.9p. Pre-tax profit rose 109% to £1.73bn, and investment reached about £6.7bn in the period.

Looking further out, National Grid expects underlying earnings per share to rise by 15% to 16% in 2026/27 from the 2025/26 baseline. Over the five years to 2030/31, it is targeting compound annual growth of 8% to 10% from a baseline of 78.0p. If earnings grow at that pace while the dividend tracks inflation, the payout ratio should fall and cover should rise over time, which would be a gradual improvement in the quality of the income.

That gap between earnings growth and dividend growth is deliberate. Regulated networks earn returns on what they invest, so a company spending at this rate needs to retain cash and keep its borrowing manageable. Shareholders are effectively accepting real-terms stability in the dividend in exchange for growth in the asset base that underpins it. The board has said the policy will be kept under regular review against Business performance and regulatory developments.

The distinction between underlying and statutory earnings is also worth understanding. Underlying earnings strip out items such as timing differences on Revenue and Fair Value movements that are expected to reverse, and it is this measure on which management bases its growth targets. Statutory earnings include those items and so can look lower in a given half. Since the dividend is judged against underlying performance, the 22% rise in underlying earnings per share is the more relevant figure for assessing future cover, though the gap to the statutory result is a reminder to read both.

Why the scrip option matters

The scrip alternative is worth a closer look because it connects the dividend directly to the investment programme. When shareholders choose shares in place of cash, the company keeps the money that would otherwise have left the business, reducing the borrowing needed to fund new network assets. Take-up rates vary, but even a partial uptake can retain a meaningful amount of cash during a period of record spending, and that retained cash is cheaper than new Debt in an environment where borrowing costs remain a consideration for every large utility.

For shareholders, the choice has consequences. Taking shares increases the holding without a cash payment, which can suit those who wish to reinvest, while those who need income continue to take cash. The tax position differs between the two routes and depends on each shareholder's individual circumstances, so holders should check how it applies to them. At LSE:NG., the scrip deadline gives each investor a short window to decide.

What to watch

The ex-dividend date on 19 November and the scrip election deadline of 10 December for ordinary shareholders are the immediate dates. Beyond that, investors will watch for the outcome of regulatory decisions, any shift in UK CPIH, which directly sets the dividend's growth rate, and whether investment continues at its current pace without pressure on the balance sheet. Full-year results will confirm the final dividend, and a steady run of inflation-linked increases would help rebuild the growth record that restarted after the rights issue at National Grid (LSE:NG.).