National Grid (NYSE:NGG) -- Special Dividend for US Shareholders

National Grid (NYSE:NGG), an international electricity and gas company operating in the United Kingdom and Wales, is raising funds for infrastructure investment. Interestingly, the execution is going to impact US and UK investors differently. Jim Nelson, editor of the Lifetime Income Report, explains below.

From his recent update to readers:

“On May 20, transatlantic utility National Grid plc (NYSE:NGG), announced it was issuing rights to raise money for repairs on its infrastructure. Many investors didn’t take the news all that well. We did…

“No one likes when a company needs to issue more stock to raise capital. After all, that immediately dilutes your stake in the company. But this one was a little different. Here’s how it worked:

“National Grid gave shareholders the right to buy two shares for every five they currently own at a 44% discount to the market price. In this way, they can raise capital, but avoid trying to find new buyers in this strange market.

“So for its ordinary shareholders, it was simply an opportunity to build their position for a discount. The company makes a profit on the proceeds. Everyone is happy. But that’s not the end of the story…

“This rights issue was only for shares traded on the London Stock Exchange. But as you know, our National Grid ADRs are traded on the New York Stock Exchange. This unique situation is going to offer a $4.23 bonus dividend.

“You see, this rights offer wasn’t registered in the U.S. That means our depositary bank, BNY Mellon, can’t pass on this offer to us. But it can take this discount and kick us the proceeds, which is exactly what it’s doing.

“Earlier this week, BNY Mellon announced it successfully sold its rights and is sending unitholders a one-time cash dividend of $4.25 per unit (minus a 2-cent fee).

“This rights issue also left a potentially more lucrative impact on the company’s stock. Some investors were not pleased by this announcement. But not just over the dilution problem. Many felt that the heads of National Grid aren’t putting shareholders first. We couldn’t disagree more.

“As noted above, National Grid is using the proceeds of this issue — roughly $4.9 billion — to pay for improvements to its grid infrastructure. We can’t think of anything more important than that. If that’s not increasing shareholder value, we don’t know what is. Take a look at the mess in the Gulf…

“BP took shortcuts, didn’t make sure the rig and well were safe, before pumping oil, and ultimately made a bad gamble. Instead of saving a few hundred thousand or even a couple million dollars, the company had to cut its dividend and set up a $20 billion escrow fund they probably won’t get back. And that was just this week!

“Of course, electric grids don’t typically come with that kind of risk. The worst-case scenario: The power goes out in South Hampton. It’s not going to end up as “the worst environmental disaster American has ever faced,” which is how President Obama classified the BP spill.

“But blackouts and brownouts can be devastating. They can also cost plenty more down the road to fix on the fly. The company is simply investing for the future.”

As Nelson suggests, the investment in infrastructure helps to build confidence healthy dividends will keep being generated down the line and, in this case, even offer a special payment perk. To find more specific and actionable recommendations from Nelson you should visit the Agora Financial research page to sign up for the Lifetime Income Report.


Rocky Vega,
The Daily Reckoning

[Nothing in this post should be considered personalized investment advice. Agora Financial employees do not receive any type of compensation from companies covered. Investment decisions should be made in consultation with a financial advisor and only after reviewing relevant financial statements.]

The Daily Reckoning