National Grid books record £11.6bn capex and 78p EPS, but a £44bn debt load funds the dividend

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On 14 May 2026, National Grid plc reported full-year results for the twelve months ended 31 March 2026, and the headline numbers were the kind that get a regulated utility waved through without a second look. Underlying operating profit rose 9% to £5.7bn. Underlying earnings per share climbed 8% at constant currency to 78.0p. Statutory EPS — the number that actually flows through to a shareholder's claim on the company — rose 9% to 65.5p. The board lifted the dividend 3.8% to 48.49p, in line with UK CPIH inflation, exactly as its policy promises. Management unveiled a commitment to invest "at least £70bn" over five years, targeting roughly 10% annual asset growth and an 8–10% compound annual growth rate in underlying EPS. Capital investment for the year hit a record £11.6bn, up more than 20%, driving 10.9% asset growth.

Read those sentences again and notice what they are doing. Every superlative — record capex, double-digit asset growth, the biggest investment plan in the company's history — is a measure of how much money National Grid is spending, not how much it is keeping. That is the central tension of the regulated utility, and National Grid is the purest, most leveraged expression of it on either side of the Atlantic. The market is being asked to price an 8–10% earnings compounder. The forensic question is whether that compounding belongs to shareholders or to the bondholders, the regulator, and the underwriters who get paid first.

The growth that has to be bought, every single year

Start with the arithmetic that the press release buries. National Grid earned £5.7bn of underlying operating profit and spent £11.6bn on capital investment in the same twelve months. The company invested roughly twice its operating profit. This is not a one-off surge ahead of a project; it is the steady-state business model. The £70bn five-year plan works out to roughly £14bn a year, above even this record level. There is no point on the horizon at which the spending slows; the entire equity story depends on it accelerating.

Where does the gap come from? It comes from debt and, when debt alone will not stretch, from shareholders. Net debt closed the year at £44.2bn, up £2.8bn from the prior year. That increase — £2.8bn of fresh borrowing in a single year — is the mechanical consequence of spending far more than you earn while still paying a dividend. The "growth" in National Grid's asset base is, quite literally, bought growth: every percentage point of the 10.9% asset expansion was financed, not generated. A retailer that grows by acquiring stores it cannot fund from cash flow is running a treadmill. National Grid runs the same treadmill, except the regulator guarantees a return on the treadmill, which is the entire reason the model survives — and the entire reason it is fragile.

A rights issue the bulls have already forgotten

In May 2024, National Grid did the thing that regulated utilities are supposed never to do to their famously income-dependent shareholders: it launched a fully underwritten £7bn rights issue, 7 new shares for every 24 held, priced at 645p — a deep discount to the prevailing price. It raised roughly £6.8bn net, with about 91% of the new shares taken up. To accommodate the enlarged share count, the company rebased its total dividend by roughly 15%.

Sit with that. A company marketed for decades as a widows-and-orphans income holding cut the effective per-share payout and asked existing holders to write a cheque to avoid being diluted. The official framing was upbeat: the cash would fund a then-£60bn investment programme, now grown to £70bn. But strip away the language and the event is unambiguous — the balance sheet could not carry the ambition, so equity holders backstopped it. The market has a short memory, and two years of CPIH-linked dividend increases off the rebased base have largely soothed the wound. The forensic point is structural: an enterprise that needs to spend twice its operating profit indefinitely is an enterprise that will tap its owners again when conditions tighten. The 2024 raise was not an aberration. It was a preview.

The allowed return is the only number that matters, and shareholders do not set it

Every dollar of National Grid's earnings ultimately traces back to a number decided in a regulator's spreadsheet, not a competitive market. In the UK, Ofgem's RIIO-T3 final determination sets the framework for 2026–2031: a real allowed cost of equity of 6.12% at a notional 60% gearing for UK transmission. National Grid's earnings, its asset growth, its ability to service £44bn of debt — all of it sits downstream of that allowed return and the inflation indexation attached to the asset base.

This is the moat-versus-loophole question in its sharpest form. National Grid's defenders call the regulated monopoly an unassailable moat. It is closer to a loophole that a government department can narrow at will. The allowed return is a political variable. When rates rose and the cost of capital climbed, the lag between market borrowing costs and regulator-set allowances became the squeeze point for every UK network. RIIO-T3's 6.12% real cost of equity is generous relative to its predecessor — that is genuinely good news for the company — but it is good news granted, not earned, and it can be withdrawn or trimmed at the next price-control reset. A business whose terminal value depends on the continued goodwill of Ofgem and FERC is not a bond; it is a five-year option on regulatory mood, repriced each cycle.

Statutory versus underlying: the 12.5p that quietly disappears

National Grid reports two earnings numbers, and the gap between them is where a forensic reader lives. Underlying EPS was 78.0p. Statutory EPS — the figure prepared under accounting standards, the one that actually corresponds to reported profit attributable to shareholders — was 65.5p. That is a 12.5p wedge, roughly 16% of the underlying number, that the company asks you to look past.

Adjusting items are not inherently sinister; regulated utilities carry genuine timing differences, remeasurements, and exceptional charges. But the discipline is to ask which number you are being sold on. When management guides to "8–10% underlying EPS CAGR," it is compounding off 78.0p, not 65.5p. When the dividend is set, it is set against cash and policy, not statutory profit. The market headline of "EPS up 8%" rests on the adjusted measure. The cleaner, less flattering statutory figure grows too — up 9% this year — but the persistent 16% gap is a standing reminder that the number doing the heaviest lifting in the bull case is the one National Grid defines itself. Quality of earnings is not about whether the adjustments are defensible; it is about which line the valuation hangs from. Here it hangs from the adjusted one.

A bond proxy at a bond proxy's mercy

National Grid is priced and pitched as a yield instrument. The US-listed ADR trades around the high-$80s, carrying a dividend yield in the mid-3% range on the ADR and a higher figure on the London line, with a trailing P/E that sources place anywhere from roughly 18 to the low-20s depending on whether you use statutory or underlying earnings. For an income holder, the appeal is obvious: a CPIH-linked dividend, a regulated asset base, decades of dividend history.

But a bond proxy carries a bond's enemy: interest rates. National Grid is one of the most rate-sensitive large-cap equities in the market precisely because its appeal is its yield and its model is its leverage. With £44.2bn of net debt and a relentless capex programme financed partly by new borrowing, the company's interest bill is a live variable. Higher-for-longer rates do two things at once: they raise the cost of the debt that funds the £70bn plan, and they make the dividend yield less special relative to risk-free alternatives, compressing the multiple. A genuine bond at least returns par at maturity. This bond proxy has no maturity, an obligation to keep spending, and a payout that was already rebased once. The "safety" the bulls pay for is the very feature — yield-driven, debt-heavy — that makes the equity fragile when money is not free.

Gearing at 61%, with the regulator expecting it to climb

Regulatory gearing held at 61% over the year — a figure management presents as disciplined. The forward picture is less comfortable. Under the RIIO-T3 trajectory, gearing is expected to drift back toward the high-60s by the end of the price-control period as the capital programme runs ahead of internally generated cash. In other words, the balance sheet is designed to get more leveraged, not less, over the next five years, even after the £7bn equity injection.

This is the denominator illusion in reverse. Asset growth of 10.9% looks like value creation, but it is matched by a balance sheet that has to expand its borrowing to keep pace. The equity cushion under £44bn of debt is thin enough that the company already had to ask shareholders to top it up once. If allowed returns disappoint at any future reset, or if construction inflation pushes the £70bn plan toward £80bn — utility megaprojects rarely come in under budget — the funding gap reopens. And the only two ways to close it are more debt onto an already-stretched balance sheet, or more equity from holders who bought the stock for income and would dilute themselves to defend it.

The US business: growth, currency, and a different regulator

Roughly a third of the story is American — National Grid's transmission and distribution networks across the US Northeast, regulated by FERC and a patchwork of state commissions. The pitch is that US rate base growth diversifies the UK regulatory risk. The forensic counter is that it stacks a second regulatory dependency on top of the first, in a different currency, under different political winds.

The 78.0p underlying EPS was reported "at constant currency," which is the tell: sterling reporting of dollar earnings introduces an FX swing that flatters or punishes the headline depending on the year's exchange rate, independent of operational performance. US rate cases bring their own lag between rising costs and approved recovery, and state commissions in the Northeast face acute political pressure over consumer bills in exactly the period National Grid plans to raise spending hardest. Geographic diversification is real, but it is diversification across regulators, not away from regulation. The single biggest risk to the equity — that an allowed return gets set below the true cost of capital — exists on both continents simultaneously.

Priced for the plan to be delivered, on time and on budget

The 8–10% EPS CAGR guidance, with FY2027 underlying EPS guided up a striking 13–15% as higher RIIO-T3 allowed revenues phase in, is the spine of the valuation. It is also a forecast that requires near-flawless execution of the largest capital programme in the company's history. Every figure in the bull model assumes the £70bn gets deployed productively, the regulator keeps allowing the indexed returns, rates behave, construction costs stay roughly within budget, and no major asset failure or political intervention reroutes the cash.

That is a lot of conditions for a stock sold as low-drama. Priced-for-perfection asymmetry does not require the company to fail; it requires only that any one of the load-bearing assumptions slips. A delayed grid connection programme, a stricter-than-expected next price control, a sterling move, a US rate case denial, a rate environment that stays hostile — each individually survivable, collectively the difference between 9% compounding and a multiyear de-rating. The downside is not a blow-up; it is a slow grind as the multiple compresses and the dividend's growth fails to outrun the cost of carrying £44bn of debt.

The dividend grows, but watch what funds it

The CPIH-linked dividend is the single most important promise National Grid makes to its shareholder base, and this year it delivered: 48.49p, up 3.8%, tracking inflation exactly as advertised. The danger is in confusing a covered dividend with a self-funded one. National Grid does not pay its dividend out of free cash flow in any conventional sense, because there is no free cash flow — the company spends every pound it earns and then some on capital investment, and the dividend is paid on top of that gap. The payout is therefore funded, at the margin, by the same borrowing that funds the build.

This is not unusual for a utility in a heavy investment phase, and it is not a sign of imminent distress. But it reframes the "reliable income" thesis. The income is reliable as long as two things hold: lenders keep extending £44bn-plus of debt at rates the allowed return can absorb, and the regulator keeps indexing the asset base to inflation so the equity value keeps pace. Take either away and the CPIH escalator becomes a promise the cash flow cannot keep without another trip to shareholders. A dividend that depends on the bond market staying open and the regulator staying friendly is a conditional dividend, however long its unbroken history. The 2024 rebase proved the conditions can bind. History is comfort; it is not a covenant. The distinction matters most in exactly the environment a yield buyer fears least and should fear most: a period of stable inflation and stubbornly high real rates, where the dividend keeps rising on paper while the cost of financing it quietly erodes the spread that makes the whole structure work. Reliability and resilience are not the same property, and National Grid has far more of the former than the latter.

What the bulls genuinely get right

The bull case here is not a fantasy, and pretending otherwise would be the same intellectual dishonesty the forensic style exists to puncture. National Grid owns genuinely irreplaceable infrastructure — the electricity and gas transmission backbone of an entire economy — and that is about as durable a competitive position as exists in public markets. The cash flows are real, regulated, and inflation-linked; the CPIH escalator on the dividend is a structural feature most income stocks would envy. The RIIO-T3 settlement, with a 6.12% real allowed cost of equity, is materially more generous than its predecessor, and that genuinely de-risks the next five years of returns rather than the reverse. The £7bn rights issue, painful as it was, was raised at high take-up and put the balance sheet on a sounder footing precisely so the company could fund growth without a crisis. Statutory EPS, not just the adjusted figure, grew 9%, so the earnings quality is better than a reflexive short would claim. The electrification of transport and heat, plus surging data-centre demand, gives the £70bn plan a demand backdrop that is secular, not speculative — somebody has to build the wires, and National Grid sits at the toll booth. And a regulated near-monopoly is one of the few business models where spending twice your operating profit on capex is rational, because the regulator guarantees a return on every pound deployed. If allowed returns hold, the asset base compounds at ~10% and the equity compounds with it. That is a real, defensible thesis. The disagreement is about price, leverage, and how much the market is paying for a return that a government department sets.

The kicker

The genius of the regulated utility is that it converts the boring business of moving electrons into a machine that grows its asset base by double digits a year. The trap is that the machine only works while a regulator agrees to pay for it, and the bill for keeping it running — £11.6bn this year, £70bn over five, financed by £44bn of debt and, when that runs short, by the shareholders themselves — never stops coming due. National Grid is not the bond its yield implies. It is a leveraged, capital-hungry option on regulatory generosity, marketed to people who think they bought safety. The dividend was rebased once already; the gearing is engineered to climb; the earnings everyone quotes are the adjusted ones. None of that makes it a bad company. It makes it a misunderstood one — and the gap between how a stock is understood and how it actually works is where the forensic investor earns a living.

A regulated monopoly is the safest business in the world right up until the moment the regulator, the rate environment, or the construction budget decides it is not — and by then you have already wired the cheque.