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Forget Centrica’s 11% yield! I think this FTSE 100 dividend growth stock is a better buy

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Was anyone really surprised to see Centrica (LSE: CNA) put out another dire set of financials at the start of this week?

The energy supplier famously sank after shocking full-year numbers unpacked in late February, and while it may have avoided an ignominious slump following its latest update, the miserable share price slide in the run-up to yesterday — down 25% since that last release — reflected market expectations of another miserable update.

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Centrica’s now dealing under 100p per share for the first time this century, and can anyone honestly expect it to bite back given the rate at which it continues to lose customers? This week’s update showed the company lose an additional 234,000 in the four month to April because of “a significant increase in the level of the default tariff cap.”

Trouble across the board

However, further erosion in the customer base wasn’t the company’s only problem in the first third of 2019 as warm weather hit its North American operations; gas prices fell in the UK; and extended outages occurred at the Dungeness B and Hunterston B nuclear power stations. Quite the nightmare start to the year then.

So sure, Centrica’s 11% forward yield might be one of the biggest on the FTSE 100 right now, but this isn’t enough to tempt me. I expect profits to be falling and dividends to be cut, scenarios which bode ill for the share price in the near term and beyond.

RSA is A-OK

Dividend yields at RSA Insurance Group (LSE: RSA) sit well below those of the utilities giant for the next couple of years, at 5.2% and 6% for 2019 and 2020 respectively.

However, because of the rate at which the firm has hiked shareholder payouts in recent years — almost 1,000% since 2014, to be exact — and at a time when Centrica has been slashing its own dividend, I reckon this stock is a much better Footsie share to load up on today.

Of course the past is not a watertight indicator of what we can expect RSA’s dividends to come in at in future years, but it does illustrate the generosity of the board when it comes to such matters. And judging from most recent financials, the insurance provider certainly appears in good shape to keep raising annual payouts at breakneck pace.

Data last week showed net written premiums rose 3% in the three months to March, reaching £1.57bn, with business at RSA remaining robust despite an environment of tough market pricing. In particular, this latest statement illustrated the strength that the firm’s major overseas markets of Canada and Scandinavia affords it — while premiums in the UK and international sank 5% in quarter one, in Canada they jumped 8% and in Scandinavia they rose 3%.

An extra reason to expect big dividends this year at least: RSA’s bulletproof balance sheet, with its Solvency II ratio which stood at of 164% as of March. For dividend chasers, RSA is no longer the bête noire it was when it was slashing dividends in the middle of the decade. Indeed, for those looking to receive big, big returns well into the next decade, I reckon it’s a great share to load up on 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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