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.
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.
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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.