The Motley Fool

Forget the Centrica share price! I’d buy this FTSE 100 stock for the next decade

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.

Piggy bank group pastel color background
Image source: Getty Images

The Centrica (LSE: CNA) share price used to be one of the most trusted income investments in the FTSE 100. Unfortunately, in recent years, the company has lost this crown. 

After a string of disasters, the owner of British Gas has cut its dividend repeatedly since 2010. And I am doubtful that the group will ever be able to recover its income credentials. 

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!

Headwinds for the Centrica share price 

According to my research, Centrica’s problems are twofold.

First off, the company has too much borrowing. It has been struggling to get its debt under control for several years with assets sales and cost-cutting. These efforts have had an impact, but it doesn’t look as if the impact has been enough to reduce investor concerns. 

Secondly, it doesn’t seem as if the business has been investing enough in its customer experience. British Gas has haemorrhaged customers to smaller peers. It’s easy to see why. The former state utility has an average customer service rating of just 3.6 on Trustpilot. A staggering 24% of reviewers gave the firm only one star. 

These twin headwinds suggest to me that management is going to struggle to turn the business around. As such, I’d avoid the Centrica share price. 

FTSE 100 alternative 

Instead of the struggling utility, I think it could be worth taking a look at network infrastructure operator National Grid (LSE: NG). Unlike Centrica, National Grid has been investing to stay ahead. It has deployed billions of pounds in capital over the past five years to grow its US business. This operation now accounts for around half of its assets. 

By diversifying overseas, National Grid has been able to reduce its reliance on the group’s home market. The extra income has also helped support the company’s dividend. 

Another advantage National Grid has over the British Gas owner is its size. Owning and operating electricity grids in the UK and US is a highly regulated business. This means the company has very few competitors, unlike Centrica. 

So, while the Centrica share price has come under pressure due to falling customer numbers and profits, investor sentiment towards National Grid has remained strong.

Therefore, I would buy shares in the grid operator over its smaller peer. Even though Centria remains a force to be reckoned with, I’m concerned about the company’s long-term potential. There has been a rush of new utility providers entering the market over the past five years, and the group has just not been able to keep up. I don’t think this is going to change any time soon.

As such, I believe investor sentiment towards the Centrica share price will remain depressed for the next few years. On the other hand, I think National Grid will continue to build on the platform it has created over the past few years. I think this will lead to high total returns for its shareholders. 

There’s a ‘double agent’ hiding in the FTSE… we recommend you buy it!

Don’t miss our special stock presentation.

It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.

They think it’s offering an incredible opportunity to grow your wealth over the long term – at its current price – regardless of what happens in the wider market.

That’s why they’re referring to it as the FTSE’s ‘double agent’.

Because they believe it’s working both with the market… And against it.

To find out why we think you should add it to your portfolio today…

Click here to get access to our presentation, and learn how to get the name of this 'double agent'!

Rupert Hargreaves has no position in any of the shares 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.