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.

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

Close up of a group of friends enjoying a movie in the cinema
Investing Articles

I’m eyeing these two cheap dividend shares for 2024!

This Fool likes dividend shares as a play for 2024. Here, he identifies two that look cheap and explains why…

Read more »

Investing Articles

This FTSE 250 growth machine is top of my list of stocks to watch in 2024

Despite a 13% fall, Games Workshop shares trade at a P/E ratio of 22. Stephen Wright plans to keep a…

Read more »

Investing Articles

The Tesla share price is a bargain to me

A lot of people think the Tesla share price is overvalued. Oliver Rodzianko disagrees. He tells us why he’s piling…

Read more »

Investing Articles

The BT share price is up 20% in a year. Should I buy now for 2024?

The BT share price has performed strongly so far in 2023. Christopher Ruane thinks it might keep moving up --…

Read more »

Light bulb with growing tree.
Investing Articles

One 9p penny stock I’m loading up on in 2024

This penny stock has fallen more than 50% over the past two years despite encouraging progress being made at the…

Read more »

Middle-aged Caucasian woman deep in thought while looking out of the window
Investing Articles

Should investors rush to buy Lloyds shares before the end of the year?

UK bank stocks have been trading at low prices since the crisis in March. But Stephen Wright thinks Lloyds shares…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

£8,000-£9,000 of savings? Here’s how I’d aim to turn that into passive income of £360 a month

With less than £10,000 in savings, our writer thinks he could aim to set up monthly passive income streams averaging…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

3 simple Warren Buffett moves I reckon could help me turn £1,000 into £100,000!

Warren Buffett has turned a £1,000 investment into one worth an incredible £70m over the decades. This writer is taking…

Read more »