The Motley Fool

Is Centrica’s 8%-plus dividend yield safe?

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.

Businessman standing in front of screen
Image source: Getty Images.

Energy and services company Centrica  (LSE: CNA), which is known for its ownership of the British Gas brand is sporting a dividend yield in excess of 8%. But the Centrica share price has plunged more than 70% since the autumn of 2013 and the downtrend seems intact, which makes that chunky yield look dangerous, to me. Let’s dig in deeper to gauge whether that fat dividend can survive going forward.

Challenging trading

With the full-year results report presented in February, chief executive Ian Conn said the firm’s 2018 performance was mixed against a challenging external backdrop.” Volumes in the Spirit Energy and Nuclear divisions were “disappointing” and an anticipated recovery in the North American business was proving to be “slower than expected.”

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Looking ahead, Conn anticipated that the firm’s financial performance in 2019 will be affected by the UK default tariff cap “and continuing lower volumes in E&P and Nuclear.” Targets for operating cash flow are “under pressure” for 2018 to 2020, which is the exact opposite of the kind of news I want to hear from a business backing one of my dividend-led investments.

The company has been struggling for some time and now seems to be engaged in full turnaround mode, embracing tactics such as bearing down on costs, selling off assets and working harder than ever to drive sales. Hmmm, so far, so worrying.

Strained financial figures

Operating cash flow has moved lower over five years but so has the figure for net debt. This is a business that appears to be declining rather than one that is growing. I want my dividend investments to be backed by firms capable of increasing their revenue, cash flow, earnings and dividends each year. Centrica falls short of that ideal.

Year to December







Operating cash flow per share







Net debt (£m)







Indeed, the dividend and earnings have both been trending down and City analysts following the firm expect further declines in both those measures going forward.

Year to December







Dividend per share







Adjusted earnings per share







I reckon there is a high risk that the dividend will decrease from where it is now and that the share price will continue to fall. So that’s a potential double-whammy of falling income and capital losses for investors holding the shares today.

Centrica falls far short of the safe-looking, defensive-style businesses I’m looking for to back up my dividend-led investments. This is one of those cases where I’d rather invest in a FTSE 100 tracker fund than in this individual share. A tracker would spread the risk over many companies and still deliver a decent dividend yield to reinvest automatically if I selected an accumulation version of a tracker fund.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Kevin Godbold has no position in ay share mentioned. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.