3 Great Reasons Why Centrica plc Is Set To Take Off

Royston Wild looks at the major share price drivers for Centrica plc (LON: CNA).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Today I am looking at why I believe Centrica (LSE: CNA) (NASDAQOTH: CPYYY.US) is an energising stock selection for intelligent investors.

Retail bubbling on both sides of the Pond

Centrica continues to make excellent progress at its core British Gas division in the UK as it taps into consumers’ concerns over rising utility costs. Schemes such as its ‘Tariff Check’ to help customers pick out the best deal for them has proved extremely successful, while it is also at the forefront of smart meter installation in Britain. These helped British Gas add 56,000 new clients in January-June.

And Centrica has been very active on the M&A front recently across its North American downstream operations, where it is seeking to double profits within the next three to five years. The firm’s Direct Energy retail division acquired AWHR America’s Water Heater Rentals for $30m just last week in a bid to boost its existing rental services operations.

This follows the July purchase of Hess’ Energy Marketing business for $731m plus approximately $300m in net working capital, a move which saw Direct Energy become the second biggest business power supplier in the US retail market.

Upstream and away

As well, the company is also building its upstream portfolio in order to generate future growth. The firm produces around 75 million metric barrels of oil equivalent per year, giving it around seven

years of capacity at current reserves.

The company is using its massive cash reserves to build these assets, and bought Suncor’s gas and crude oil assets in Canada with Qatar Petroleum International for £650m in April. And with £700m ploughed into organic investment in the first six months of 2013 alone, Centrica is gearing up to deliver excellent upstream growth.

A dependable dividend generator

Centrica is a popular stock selection amongst income investors having lifted the total payout above inflation for each of the last 13 years. And Liberum Capital anticipates the energy provider to increase last year’s full-year dividend of 16.4p per share to 17.7p in 2013, a chunky 8% on-year increase. This is then expected to rise a further 6% in 2014 to 18.7p.

At current prices these prospective payouts carry yields of 4.5% and 4.7% respectively, which compares extremely favourably with the forward average of 3.2% for the complete FTSE 100. In addition, Centrica is also putting its sizeable cash pile to work through a £500m share repurchase scheme, scheduled to boost shareholder returns through to next February.

Pick another power play for plentiful returns

So in my opinion Centrica is a fantastic share for those seeking exceptional growth prospects and meaty dividend income. But if are also looking for other lucrative plays to really propel the income from your stock portfolio, I recommend you take a look at this exclusive, in-depth report about another FTSE 100 high-income opportunity.

The blue chip in question offers a prospective dividend yield comfortably north of 5.5%, and has been declared “The Motley Fool’s Top Income Stock“! Click here to download the report now — it’s absolutely free and comes with no further obligation.

> Royston does not own shares in Centrica.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Nottingham Giltbrook Exterior
Investing Articles

£10,000 invested in Marks and Spencer shares 10 years ago is now worth…

Have Marks and Spencer shares delivered a positive return in the last decade? And should I consider buying the FTSE…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Down 15% despite strong earnings forecasts, should investors consider this FTSE medical tech giant?

This FTSE 100 medical equipment manufacturer is forecast to see excellent earnings growth in the next three years and looks…

Read more »

UK financial background: share prices and stock graph overlaid on an image of the Union Jack
Investing Articles

The Burberry share price rises despite reporting a post-tax loss of £75m!

Our writer’s surprised how the Burberry share price has reacted following the release of the luxury fashion brand’s latest results.

Read more »

Satellite on planet background
Investing Articles

Down 7%, is BAE Systems’ share price an unmissable bargain for me, especially after its Q1 trading update?

BAE Systems’ share price has dipped recently, despite a strong update for the first quarter, leaving it looking even more…

Read more »

Thin line graph
Investing Articles

This 10%-yielding FTSE 250 dividend stock looks great! But does it have long-term promise?

Discover why this 10%-yielding FTSE 250 stock could be a strong long-term income investment – and what risks investors should…

Read more »

Businessman hand flipping wooden block cube from 2024 to 2025 on coins
Investing Articles

My 9,249 Lloyds shares paid me income of £303 in 18 months – I’ll get another £195 next week

Harvey Jones says his Lloyds shares have delivered a modest stream of dividends in the last year or so, and…

Read more »

piggy bank, searching with binoculars
Investing Articles

An underrated value stock? I think investors should take a closer look

This value stock appears overlooked by the market. And that’s quite rare right now as the stock market recovers from…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

Up 35% in a month! But is this electrifying UK growth share a total gamble?

Harvey Jones wishes he'd had a flutter on gaming group Entain last year, as it's now smashing the FTSE 100.…

Read more »