Centrica (LSE: CNA) hasn’t paid a dividend to investors since 2019. But with profits soaring again the company has decided to reinstance shareholder payouts.
At current prices of 83.5p, the FTSE 100 business now carries a dividend yield of 3.7% for 2022, based on current dividend forecasts.
These readings fall marginally below the FTSE index average of 3.9%. But the dividend yield rises to a superior 4.4% for 2023.
Centrica’s yields are healthy rather than amazing. But could the energy giant be a great buy for investors seeking dividend growth? Here, I’ll drill down into its dividend forecast for the next couple of years and explain why I’d buy — or wouldn’t buy — Centrica shares for my portfolio.
Dividends to return?
It slashed 2019’s annual payout to 1.5p per share from 12p as the government’s energy price cap and huge restructuring causes monumental losses. The onset of Covid-19 also dented the dividend and prompted Centrica to pay zero dividends in 2020 and 2021 too.
But Centrica’s given income investors something to cheer more recently as it paid a 1p per share dividend for the first half of 2022. City analysts are expecting a full-year payout of 3.1p.
And things get even better for 2023. Next year, brokers expect the total dividend to jump 19% year on year to 3.7p per share.
Robust forecasts
It seems to me as if Centrica has a great chance of hitting these estimates too. The first port of call is to see how many times over projected dividends are covered by anticipated earnings. A reading of 2 times and above is the target for investors to be confident. Encouragingly, its dividend cover sits above an impressive 5 times through to the end of 2023.
Centrica also now has a robust balance sheet to help it pay decent dividends over the short-to-medium term. It had net cash of £316m on its books as of June. A year earlier it had debts of £93m.
Should I buy Centrica shares?
| Centrica’s share price | 83.5p |
| 12-month price movement | +63% |
| Market cap | £4.8bn |
| Forward price-to-earnings (P/E) ratio | 5.1 times |
| Forward dividend yield | 3.7% |
| Dividend cover | 5.3 times |
Profits and cash flows have rocketed at the firm, thanks to sky-high energy prices. In fact, adjusted operating profit jumped fivefold between January and June to £1.3bn as the Ukraine conflict pumped up oil and gas values.
However, Centrica still poses some significant risks to investors. This is reflected in the company’s rock-bottom price-to-earnings (P/E) ratio.
The rising strain on household budgets is prompting people to shop around for better energy deals, damaging margins at British Gas and pulling customer numbers 5% lower in the first half.
Then there’s the uncertain long-term picture for Centrica’s fossil fuel exploration and production business. The pressure for nations to accelerate their net zero ambitions is growing and demand for energy from renewable sources is booming.
As someone who buys shares for the long haul I believe it still carries too much risk. As a result, I’ll be looking to buy other dividend-paying UK shares today.