Centrica plc isn’t the only dividend stock I’d hold for the next decade

This dividend stock could be worth buying alongside 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.

sdf

Having fallen by 37% in the last year, it is little surprise that many investors are uncertain about the outlook for Centrica (LSE: CNA). The company has experienced a hugely challenging year, with its trading performance being behind expectations and political risk continuing to build towards the wider domestic energy supply industry.

One consequence of its falling share price has been a rise in its dividend yield. It now stands at 8% and while there is a chance that payouts will be cut over the medium term, the dividend potential of the company remains high. That said, it is not the only income stock which could be worth buying right now. Reporting on Wednesday was a gold miner which could be a surprisingly strong income opportunity.

Strong performance

The company in question is Centamin (LSE: CEY). Its fourth quarter production results were positive, with gold production being 154,298 ounces. This is a 12.8% increase versus the same period from the prior year and means that full-year gold production was above guidance of 540,000 ounces at 544,658 ounces.

Looking ahead, there could be further growth in production. Guidance for 2018 is 580,000 ounces, which would represent a 6% rise from 2017. There is expected to be a relatively balanced quarterly production profile during the year, with a forecast cash cost of production of $555 per ounce and an all-in-sustaining cost of $770 per ounce. This means that even if the gold price declines significantly from its current level of $1315 per ounce, Centamin is likely to remain highly profitable.

With a dividend yield of 3%, the company may not be the highest-yielding share around. However, its shareholder payouts are covered around 1.7 times by profit, which suggests they could rise at a rapid rate. That’s especially the case since earnings are forecast to rise by 14% in 2018, which could positively catalyse dividend payments over the next few years.

Uncertain future

Of course, back with Centrica, its future is difficult to predict. It is currently delivering its restructuring and expects to reduce costs significantly over the coming years. However, with a large amount of change ongoing at the company, investor sentiment could remain weak. This could keep the stock pegged back in terms of its investment performance. And with heightened political risk now that inflation has moved higher, the defensive status of the utility sector may be less than had previously been anticipated by some investors.

However, with such a high dividend yield and the prospect of an improved business model over the medium term, Centrica still seems to be a stock worth buying today. It may take many years for it to deliver strong capital growth, but in the meantime its 8% dividend yield should provide a relatively sound total return even at a time when the FTSE 100 continues to make record highs.


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.

Peter Stephens owns shares in Centamin and Centrica. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

A pastel colored growing graph with rising rocket.
Investing Articles

Nvidia stock hit an all-time high this week. But could it be a bargain, even now?

After the Nvidia stock hit an all-time high this week, might it still be an attractive opportunity for our writer's…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

As the FTSE 100 hits an all-time high, I’m following Warren Buffett’s advice!

Billionaire investor Warren Buffett is a font of stock market wisdom. Our writer reflects on his approach, as the FTSE…

Read more »

One English pound placed on a graph to represent an economic down turn
Investing Articles

The FTSE 100 reached an all-time high this week. Is it too late to invest?

The FTSE 100 hit a new all-time high level over the past few days. Our writer explains why he thinks…

Read more »

Close-up image depicting a woman in her 70s taking British bank notes from her colourful leather wallet.
Investing Articles

Here’s how £9,000 in savings could be used to target £343 a month of passive income

Christopher Ruane sets out a passive income plan that he reckons could help someone make sizeable sums over time without…

Read more »

ISA Individual Savings Account
Investing Articles

How to build a Stocks and Shares ISA with a 6% dividend yield

It’s easy to build an investment portfolio with a high dividend yield today. But investors need to manage risk carefully,…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

How risky is switching from cash savings to a Stocks and Shares ISA?

The UK government is making moves to encourage cash savers to consider investing via Stocks and Shares ISAs. But what…

Read more »

Friends and sisters exploring the outdoors together in Cornwall. They are standing with their arms around each other at the coast.
Investing Articles

4,985 shares of this FTSE dividend star pay an income equal to the State Pension!

Zaven Boyrazian calculates how many shares investors would have to buy to generate enough income to match the UK State…

Read more »

Finger clicking a button marked 'Buy' on a keyboard
Investing Articles

£500 buys me 407 shares in this 8.2%-yielding income stock!

Got a small lump sum? Zaven Boyrazian explores one underappreciated income stock offering an enormous yield that could be set…

Read more »