£20,000 invested in National Grid shares 5 years ago is now worth…

Despite their popularity, National Grid (LSE:NG.) shares haven’t been stellar performers over the last five years. The stock’s only climbed by around 33% since September 2020. And while dividends do push the total return closer to 72%, that’s still shy of the 86% generated by the FTSE 100 over the same period.

In terms of money, investors have still made a profit. A £20,000 investment in National Grid shares five years ago would now be worth roughly £34,400. On the other hand, passive index investors are currently slightly better off at £37,200. But could that soon be about to change?

What’s on the horizon

The National Grid share price has been a touch more volatile than usual in recent years. And that’s not entirely surprising given management’s aggressive and ambitious £60bn infrastructure investment plan. The goal is to drastically modernise its energy grids, increasing capacity, boosting transmission efficiency, and ultimately expanding profit margins.

If successful, management’s predicted it can generate up to 8% annualised earnings growth between now and 2029 while simultaneously lowering costs for customers in the long run. It’s still very early days. But the company’s already put more than £10bn to work, growing its asset base about 10%, and generating a solid 12% boost to underlying operating income – in line with growth targets.

Assuming National Grid keeps up the pace, several leading institutional analysts have projected its shares could deliver strong double-digit gains, even before counting the current 4.6% dividend yield.

What could go wrong?

Despite the bullish forecasts, it’s important to remember that National Grid isn’t a guaranteed winner. Even if management achieves perfect execution (already a big ask) in its massive investment project, other external threats might also adversely impact performance.

For example, US tariffs could introduce supply chain disruptions as well as create inflationary costs. That runs the risk of project delays as well as budget overruns, while simultaneously offsetting the expected margin gains through infrastructure efficiency.

This risk is only compounded by the challenging regulatory environment. In the UK, National Grid has already faced penalties from Ofgem for previous project delays. At the same time, there’s the ongoing negotiation about how much revenue National Grid’s allowed to generate from customers in the third regulatory price control period between April 2026 and March 2031.

Currently, Ofgem’s proposed limits roughly translate into a 4.5% return on capital. That’s significantly lower than National Grid’s 6.3% request. And while there’s still time to negotiate, there’s no guarantee that the regulator will budge before the final determination in December this year.

The bottom line

Overall, National Grid shares seem to have considerable growth potential. But as a regulated monopoly, this growth potential could ultimately be restricted. And since I prefer my businesses to be in control of their own destinies, this isn’t a stock I’m rushing to buy right now, even with bullish analyst forecasts.