Shares in Centrica (LSE: CNA) have disappointed during the course of 2014. Indeed, they are currently down by 12% since the turn of the year as investors have remained cautious during a highly uncertain period for the company.
Not only is it in the process of changing its management team, Centrica is also seeing sentiment remain weak due to worries regarding a Labour victory at the 2015 General Election. Such an event could mean an electricity and gas price freeze for consumers, as well as a new and more robust regulator. In turn, it is feared that this could hurt the company’s bottom line.
Despite this, Centrica could still prove to be a winning investment and could help you to retire rich. Here’s how.
Income Potential
Over the last four years, very few companies have been able to increase dividends per share in each year. However, Centrica has achieved that feat and has increased dividends per share at an annualised rate of 7.4% during the period. This shows that, when it comes to dividend growth, Centrica remains a reliable proposition.
Indeed, the company is expected to increase dividends per share by 3.2% in the current year and by 3.3% next year. Both of these rises would be well ahead of the current rate of inflation and, as a result, are likely to provide a real-terms increase in income for investors in the company.
This strong dividend track record and potential is allied to a superb yield. At present, Centrica yields a highly appealing 5.8%. This is above and beyond the FTSE 100’s yield of around 3.5% and puts Centrica near the top of the highest yielding shares in the index.
Valuation
Clearly, Centrica is a company for which the future looks uncertain. However, the aforementioned management changes and price freeze risk seem to be adequately priced in to the company’s current valuation. For example, alongside a high yield, Centrica’s shares also have a relatively low price to earnings (P/E) ratio of 11.4. This shows that, as well as top notch income potential, shares in Centrica are also available at a very reasonable price.
Looking Ahead
While Centrica’s short to medium term future may remain highly uncertain, it is a high quality company with superb income prospects. In addition, while domestic energy supply makes up around two thirds of its revenue, the existence of its exploration and production arm means that its bottom line has the potential to deliver stronger growth than the market currently anticipates. As a result, it could be a strong long term play that helps you to retire rich.