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Warning! Will dividends be cut at this FTSE 100 9% dividend stock?

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Would anyone be surprised if Centrica (LSE: CNA) was to cut the dividend once again in 2019? I won’t be. Dividends have either been cut or frozen for what now seems an age, and I’m strongly tipping another painful reduction in the near term.

Like many of the FTSE 100’s oil producers, Centrica faces no little profits pressure on account of the volatile oil price, but trouble for its upstream divisions is the least of its problems. When I last covered the Footsie firm I mentioned how customer numbers at its British Gas division continue to seep through the floor as competitive pressures mount, and latest industry data shows that the trend is far from over.

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Britons are still switching

Trade association Energy UK declared that a staggering 450,000 more energy customers switched supplier in February, meaning that 835,642 households have swapped in the first two months of 2019 (up 2% from the corresponding period last year).

The number of switchers has risen year after year, from 3.2m in 2014 to a record 5.88m last year, and things look set for another all-time high to be hit in 2019. It’s much easier and more fashionable to switch energy provider than ever before, thanks in no small part to the raft of price comparison websites out there, whilst the financial pressures created by Brexit mean that many will have no alternative than to change to a cheaper independent supplier in the months ahead.

This scenario was highlighted by fresh data from loans comparison site FairMoney which showed that a whopping 53% of citizens say that their average disposable income per week is less than zero.  And the strain is only likely to increase as the UK embarks on its economically-damaging Brexit odyssey.

Too much risk!

I’m not shocked to see that City analysts are forecasting that earnings will fall again at Centrica in 2019 and by a shocking 19%. This is why the number crunchers are also forecasting that the annual dividend will drop to 10.6p per share this year, down from the 12p reward forked out over the past several years.

It’s hard to see how the business can turn around its flagging top line, putting dividends in danger for the near term and beyond. It doesn’t matter to me that the energy colossus is engaging in asset sales (£500m worth of non-core assets have been put on the chopping block, in fact) and cost-cutting measures to remedy its battered balance sheet.

I’m far more concerned by the increasing pressure on its retail operations as Britons’ household budgets erode, and the threat from government and regulators to force its tariffs lower and lower in response grows. So forget about its huge 9% dividend yield, I say. There are many superior dividend stocks for investors to snap up today.

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Royston Wild 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.

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