Today I am outlining why Centrica (LSE: CNA) could be considered an attractive addition to any stocks portfolio.
Regulatory fears overblown?
An environment of mounting political pressure has driven shares in the country’s main energy providers through the floor during the past year. Ever since Labour leader Ed Miliband pledged to keep energy prices frozen for 20 months last September should his party secure approval in next year’s general election, Centrica and its peers have faced everything from a Competition and Markets Authority (CMA) probe through to calls for it to be broken up and profits curtailed.
With the political run-off around just around the corner, such rhetoric is of course likely to be stepped up significantly in a bid to favour curry with potential voters. But should the worst of these regulatory shake-ups be averted, Centrica and its rivals could experience a significant share price re-rating.
Centrica’s share price alone has conceded a fifth from record peaks around 400p per share since Miliband’s speech sparked a prolonged sell-off. With the company now trading on an attractive P/E multiple of 15.1 times prospective earnings — just above the benchmark of 15 which signals decent bang for your buck — the business could experience an upward bump in the event of some much-needed good news.
Dividends expected to stroll skywards
In the light of this current pressure from politicians, consumer groups and the media alike, Centrica’s bottom line is expected to take a hammering this year as a subsequent reluctance to lift customer charges at its British Gas subsidiary dents revenue expansion.
But even though the business is anticipated to experience a 20% earnings decline this year, Centrica’s considerable balance sheet strength is anticipated to underpin further dividend growth — indeed, operating cash flows still registered at a considerable £1.5bn during January-June despite a tougher trading environment.
As a consequence, the energy giant is expected to lift the full-year payout to 17.6p per share in 2014, up from 17p last year. A further sizeable hike, to 18.2p, is currently pencilled in for 2015.
These projections create exceptional yields of 5.5% for 2014 and 5.7% for 2015. Not only do these figures smash a forward average of 3.3% for the FTSE 100, but a corresponding readout of 4.6% for the entire gas, water and multiutilities sector is also taken to the cleaners.