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.
