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Are Centrica PLC, SSE PLC And National Grid plc The Best Energy Bargains Around?

You could be forgiven for being scared of the oil, gas and energy industry right now. Crashing crude prices have made it hard for many at the upstream end of the business, and while consolidation would benefit some shareholders, others might not be so happy — the approach from Royal Dutch Shell for BG Group pleased BG Shareholders, but Shell shares dipped on the news.

If you want safer energy shares less liable to shocks, I reckon those focused more on the retail side of the market are likely to do well, especially my three picks today:

Centrica

The British Gas and Scottish Gas brands are two of the best known, and while as consumers we’re unlikely to welcome their bills, as investors we should be pretty happy the way owner Centrica (LSE: CNA) is performing. Results for 2014 brought an expected 28% fall in adjusted earnings per share and a 5% rise in net debt. And due to the need to reduce costs, chief executive Iain Conn announced the disappointing news that “along with reducing capital expenditure and driving efficiency beyond planned levels, we have taken the difficult decision to rebase the dividend by 30%“.

But the full-year dividend of 13.5p per share still yielded 4.8%, which is well ahead of the FTSE 100‘s long-term average of around 3%. Forecasts also suggest that even a rebased payout should still yield the same 4.8% this year and next on today’s price of 261p — and it should be adequately covered too, and on a distinctly average P/E of 14.

Political pressure on the energy companies seems to have subsided a little now that the parties have seen that it’s unlikely to be the big election issue they previously thought, so I reckon Centrica’s dividend is looking safe for the future now and the shares are good value.

SSE

At SSE (LSE: SSE) there’s no risk to the dividend right now, with the company having told us at Q3 time that it “expects to report an increase in the full-year dividend for 2014/15 that will at least be equal to RPI inflation” and plans to maintain that target for 2015/16 too. The firm will raise its gas and electricity prices by 4.1% from this month, but will then freeze them until “at least July 2016“.

EPS should fall slightly this year and next before picking up again, but with the shares changing hands for 1,551p we’re looking at dividend yields of close to 6% from a P/E of 13.5. That looks a very attractive proposition to me.

National Grid

Finally we come to National Grid (LSE: NG)(NYSE: NGG.US), which is possibly the safest of the three here, and that’s reflected in its slightly higher forward P/E than the other two — with the shares at 899p, current forecasts suggest a multiple of 16. But for that you’d be set up for dividends yielding 4.8% to 5% over the next three years, with 2015 results due on 21 May.

At interim time back in November, we heard from chief executive Steve Holliday that “National Grid remains on track to deliver another year of strong overall returns and asset growth“, and there’s been nothing to contradict that since. We’re likely to see a dip in EPS of around 15%, but growth should resume in 2015/16, with the firm saying it has “strong support for our policy of sustainable dividend growth, at least in line with RPI inflation, for the foreseeable future“. Sounds like a bargain to me.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Centrica. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.