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Centrica PLC’s Dividend Prospects For 2014 And Beyond

Many top FTSE 100 companies are currently offering dividends that knock spots off the interest you can get from cash or bonds.

In this festive series of articles, I’m assessing how the companies measure up as income-generators, by looking at dividends past, dividends present and dividends yet to come.

Today, it’s the turn of British Gas owner Centrica (LSE: CNA) (NASDAQOTH: CPYYY.US).

Dividends past

The table below shows Centrica’s five-year earnings and dividend record.

  2008 2009 2010 2011 2012
Statutory earnings per share (EPS) -3.3p 16.5p 37.6p 8.2p 24.6p
Adjusted EPS 21.7p 21.7p 25.2p 25.8p 27.1p
Dividend per share 12.2p 12.8p 14.3p 15.4p 16.4p
Dividend growth 5.4% 4.9% 11.7% 7.7% 6.5%

As you can see, Centrica has increased its dividend at a good clip over the last five years. The average annual increase works out at 7.2% — well ahead of inflation.

In total, Centrica has paid out 71.1p a share over the period, covered 1.7 times by ‘adjusted’ (underlying) EPS and 1.2 times by warts-and-all statutory EPS. The dividend cover is lower than the average company’s, but perfectly normal for a regulated utility; in fact, Centica’s adjusted EPS cover is particularly robust for the sector.

A solid dividend performance through difficult economic times.

Dividends present

Centrica paid a half-time dividend of 4.92p for the current year. Analyst consensus forecasts suggest a final dividend of 12.38p when the company announces its annual results on 20 February — giving a 2013 full-year payout of 17.3p (up 5.5% on 2012).

Adjusted EPS is expected to be flat for 2013, because Centrica decided not to raise British Gas prices during the prolonged cold spell in the first half of the year, despite experiencing higher costs. The combination of flat EPS and an increase in the dividend would mean slightly lower dividend cover — though still around last year’s 1.65 level.

At a share price of 329p, Centrica’s current-year dividend represents a yield of 5.3%.

Dividends yet to come

Analysts see further mid-single-digit dividend growth for 2014, with a payout in the 18.1p to 18.2p area. Earnings are also expected to advance at the same kind of rate, maintaining dividend cover at around 1.65.

Few readers will have failed to notice that energy prices are a hot topic at the moment. Last month, Centrica described the intensity of public and political debate over rising bills as “unprecedented”.

But let’s keep some perspective on matters. First, it would create utter economic chaos if politicians were to make utility companies uninvestable; and, second, Centrica’s exposure to the UK regulated sector actually accounts for only 28% of the group’s total profit — the lion’s share comes from non-regulated businesses, and regulated US businesses.

Shareholders can be optimistic about continued annual dividend increases ahead of inflation — though perhaps not so far ahead as in the past five years if politicians put a crimp in the profits of the UK regulated business.

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