MENU

This Week’s Top Blue-Chip Income Buy: Centrica PLC

I’m always on the lookout for big FTSE 100 companies when they’re being offered in the market at an attractive valuation for dividend investors. A little higher yield at the time you buy can make a big difference to the growth of your income stream over the long term. Right now, I reckon utility company Centrica (LSE: CNA) (NASDAQOTH: CPYYY.US) is looking a great buy for income.

Utilities bashing

Utilities are easy targets for politicians seeking favour with voters. Every few years, the companies come in for a bashing. It’s a popular pastime. Consumers and the media join the chorus, and we all have a right rollicking time spouting our indignation. Utilities seem to have become the vent for the nation to let off steam about rising prices in general.

Of course, there’s a good deal of stuff and nonsense in all this. The companies’ margins haven’t changed much over the years, there’s no evidence of cartel price-fixing, and a lot of the ‘fat cat’ shareholders are big pension funds from which we all benefit.

A great opportunity right now

We’re in the midst of a bout of utilities bashing at the moment. This means share prices have fallen, pushing dividend yields up. As such, there’s an opportunity to buy utilities at a higher income than earlier this year.

Centrica, whose assets include British Gas, was trading at over 400p a mere six weeks ago compared with 357p today. That 11% price drop has pushed the trailing yield up from 4.2% to 4.7%. On a forward 12-month basis, analyst dividend forecasts imply a yield of 5% for investors buying in today.

Centrica’s board was proud to say, when announcing last year’s results: “We have been able to grow the full year dividend by more than the rate of inflation for the 13th year in succession”. The growth last year was 6.5%, and analysts have pencilled in similar increases for this year and next.

Another attractive feature — which contrasts with fellow consumer-facing utility SSE — is Centrica’s geographical diversity. Around 30% of the group’s revenue comes from outside the UK, so the company isn’t at the mercy of a single regulator. Putting it all together, I rate Centrica as a great buy for income investors right now.

Another top income opportunity

If you already have Centrica in your portfolio, and are in the market for other great dividend shares, you may be interested in reading about the blue-chip opportunity featured in this free Motley Fool report.

You see, our chief income analyst believes the high-yield stock in question will deliver strong dividend growth for many years to come, and is rated significantly below fair value by the market.

Our top analyst's in-depth review of this great income opportunity comes with no obligation and can be in your inbox in seconds -- simply click here.

> G A Chester does not own any shares mentioned in this article.