Is National Grid a Buy?

Diversified utility National Grid (NYSE: NGG) isn't exactly a household name in the United States. However, with a dividend that currently yields 5.9%, income investors looking at the utility space will probably be attracted to this natural gas and electric player. Before jumping at that fat yield, however, income investors should look at the big picture around this company. One key question they'll want an answer to: Why is National Grid's yield roughly twice the 2.9% average in the utility sector, as measured by Vanguard Utilities Index ETF?

Most utilities would be considered geographically diversified if they had operations in a couple of states. National Grid takes it to the next level, providing power in both the U.S. and the U.K. It also splits its operations across electricity and natural gas. That said, the company focuses mainly on distribution assets, owning the natural gas pipes into people's homes and the power lines that transmit electricity from where it is produced to where it is used. Thus, its revenues largely come from payments for the use of its pipes and wires, rather than from providing what gets moved through them.   

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