Having blown cold on the stock for so long, should I regard this fall as a golden opportunity to finally climb on board?

Profits double!

On a day when most investors are hiding behind their sofas, the numbers from the British Gas owner make for pleasant reading. One, in particular, stood out for me: adjusted operating profit rocketed 112% to £948m in 2021. No wonder the Centrica share price has been motoring for the last nine months or so. 

No doubt some investors have been tempted to get involved following actions taken by management to make Centrica a leaner beast after losing so many customers to rivals. Direct Energy was sold last year and the disposal of Spirit Norway has also been agreed. This has helped boost Centrica’s balance sheet. In fact, the company finished 2021 with net cash for the first time in many years (£0.7bn). That’s really made me sit up and take notice. 

“Broadly positive” outlook

Of course, there’s only so much weight I should give today’s results when it comes to making an investment decision. It’s Centrica’s outlook that’s arguably far more important.

Today, the £4.5bn cap business said that it was “broadly positive” on trading in 2022. That’s not exactly bullish but it’s probably realistic considering the “wider range of outcomes” noted by the company as a result of high commodity prices. The possibility of further regulatory changes is another potential headwind.  

Opportunity knocks?

Centrica shares currently trade at 11 times earnings. That’s a low valuation relative to its industry and the market as a whole. So, am I interested in buying now?

Well, there are a few things that keep me wary.

Perhaps most prominently, I need to remember that Centrica has absolutely no control over pricing. As an indication of this, the company stated that it was still too early to say what the impact of Russia’s invasion of Ukraine would be. I prefer to own stakes in companies with more say in their destiny. 

Another thing worth noting is the lack of dividends. That’s hardly surprising for a turnaround stock. However, I like the idea of being compensated for my patience if/when the Centrica share price goes into reverse as it has today.

On a positive note, total free cash flow jumped 71% to £1.17bn in 2021 so perhaps holders won’t have too much longer to wait? The company did also say today that there was now a “clear path to restart paying a dividend”. Personally, I’ll wait until I see it.

My verdict

As encouraging as today’s results are, I don’t think they’re enough to radically alter my feelings about this stock. If I did have the cash to spare right now, I’d be taking full advantage of the market crash and buying shares in higher-quality companies elsewhere in the UK market. 

Yes, this FTSE 250 member may have done well over the last year, but I’m under no illusion that a full recovery for the Centrica share price may be many years away, if it comes at all. As someone who is looking to compound his wealth, that doesn’t appeal. 

The post The Centrica share price falls as profits double. Time to buy? appeared first on The Twelfth Magpie.

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Paul Summers 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.

Meanwhile, outsourcer Capita (LSE: CPI) has nudged back above the 100p mark after a recent dip below, but is another stock where you have to go back to the 1990s to find it last trading as low.

On the face of it, these look like two of the least-promising investment prospects in the FTSE 100 and FTSE 250, respectively. However, I think there’s a case for hardened contrarian investors to buy at these depressed prices.

All in the price?

A competitive trading environment, a recent regulatory price cap, and variables like weather and gas prices have all contributed to Centrica’s disappointing performance. However, its discount valuation relative to sector peer SSE, which faces similar headwinds, has me interested.

Centrica will be releasing its half-year results and a strategy update later this month. According to my sums the valuation, relative to SSE, implies the market is pricing in grim news. There’s a 13% downgrade to current-year consensus earnings forecasts, a 21% downgrade to next year’s, and a dividend cut of the order of 45-50%.

It strikes me that if all this is already in the price, further downside would require a monster profit warning and suspension of the dividend.

However, if current consensus forecasts for earnings (8.2p this year and 10.2p next year) and dividends (a 33% cut to 8p) are maintained, and the stock rerates to something like SSE’s valuation, we’d be looking at a share price in the region of 100p-110p.

Picking up pennies in front of a steamroller or a decent risk-reward contrarian play? I’m leaning towards seeing it as the latter.

Historic clouds clearing?

Capita was at one time a FTSE 100 company and a market darling. However, like many in the outsourcing sector, its business unravelled quite spectacularly a few years ago. As a result, a lot of investors probably wouldn’t give it a second glance today.

I think it could be time to forget the past and look at Capita afresh. Refinanced and under new management, the company successfully completed year one of a three-year turnaround plan in 2018. Now halfway through year two, we’ve had no update on trading since the annual results were released in March. So it looks like the company is on track to achieve its goals and guidance for this year too.

Management has done a good job so far and has a credible strategy to achieve its 2020 targets of double-digit profit margins and at least £200m of sustainable annual free cash flow. However, I think historic clouds are perhaps still hanging over market sentiment at this stage. On City consensus forecasts of 12.7p earnings this year, followed by 20% growth to 15.2p next year, the P/E is a dirt-cheap 8.4, falling to just 7.

I reckon the stock could be a good contrarian buy at the current level, with prospects of both improving investor sentiment and trading performance driving returns.

The post Should I buy the Centrica share price at a 21-year low? appeared first on The Twelfth Magpie.

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G A Chester 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.

I’ve been critical of its erratic history, failure to find a way to deliver sustainable earnings and dividend growth and poor long-term share performance. However, such companies do tend to go through phases where they deliver excellent turnaround returns for value investors, who buy low and sell high.

With Centrica’s shares having this month plumbed depths not seen since last century, could now be the perfect time for value investors to jump in for a recovery?

Waiting game

The market had been told, via a profit warning in November, of a poor performance for 2017. The annual results were released last week and the shares have actually advanced a little in response, as the numbers were only as grim as the market expected. Nevertheless, grim they were. Statutory earnings per share (EPS) plummeted 81% to 6p and even excluding all the nasty stuff, adjusted EPS dropped 25% to 12.6p. The board declared a 12p dividend for the third year running, having reduced the payout in each of the two prior years.

At a current share price of 142p, the trailing price-to-earnings (P/E) ratio is 11.3 on the more favourable adjusted EPS number. The dividend yield is a whopping 8.5%.

Chief executive Iain Conn told investors: “I am determined to restore shareholder value and confidence.” However, with the company continuing to bleed customers and the headwinds from political and regulatory intervention in the energy market, I believe things may well get worse before they get better. If so, the dividend would likely be cut (as some analysts are already forecasting) and the share price could fall further. As such, I’m continuing to avoid the stock at this stage.

Skin in the game

Another potential turnaround prospect beckoning investors is FTSE SmallCap firm Devro (LSE: DVO). This company, which has the long-form description “one of the world’s leading manufacturers of collagen products for the food industry” and the short-form version “sausage skin maker,” released its annual results today.

The first year of Devro’s three-year plan to deliver revenue growth and cost savings across its global operations has progressed well, with the company delivering a top-line advance of 7% thanks to increased volumes. It exceeded its cost reduction target and underlying earnings before interest, tax, depreciation and amortisation (EBITDA) increased 9%.

However, EPS dropped to 12.5p from 13.3p. This was due to higher finance costs, which will begin to fall, because the company has completed major capital investment projects. As it is, strong cash generation in 2017 saw net debt reduce to £135m from £154m and the net debt-to-EBITDA ratio come down to a healthier 2.1 from 2.7.

At a share price of 199p (little changed on the day), Devro’s trailing P/E is 15.9 and its dividend yield is 4.4% on a maintained 8.8p payout. In my view, the business is now well positioned for strong earnings and dividend growth in the coming years and I rate this turnaround stock a ‘buy’.

The post Centrica plc isn’t the only turnaround stock on offer today appeared first on The Twelfth Magpie.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Devro. 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.

Rip-off energy prices

Traditionally seen as a safe, reliable and defensive segment of the market, our large domestic energy companies have fallen foul of bearish sentiment, with an unlikely victim in National Grid (LSE: NG). Centrica, the parent company of British Gas, and SSE (formerly Scottish and Southern Energy), have both seen previously loyal customers switch to cheaper suppliers in recent times, with investors also leaving in their droves, perhaps fearing lower levels of profit for the foreseeable future.

But this isn’t the only reason for the relatively sharp sell-off. The government has been threatening to carry out its manifesto promise to bring an end to ‘rip-off energy prices’ by introducing price caps on suppliers’ standard variable tariffs. But I’m not convinced.

Monumental drop

Governments have a pitiful record when it comes to actually carrying out manifesto promises, so it remains to be seen whether or not it will take any real action, or whether energy suppliers themselves will do just enough to keep regulator Ofgem at bay. I suspect the latter.

In the meantime, investors have been spooked by the notion that if Ofgem does impose price caps, there would be a significant impact on Centrica and SSE’s profits. Hence both companies have seen their share prices take a dive this year. But here’s the conundrum. That safest of safe shares, in my view, National Grid, has lost a fifth of its value since May – that’s a monumental drop for such a low-risk utility stock.

The only way is up

Unlike Centrica and SSE, National Grid is a virtual monopoly, with no danger of customers going elsewhere. Neither is it affected by the government’s crackdown on energy prices. Unlike its blue-chip brethren, the London-based utility giant doesn’t have to worry about competition or customer complaints, it just goes about its business of energy transmission and distribution without a care in the world, churning out huge piles of cash in the process.

Pre-tax profits last year came in at £2.1bn on revenues of £15bn, leaving plenty of spare change to distribute to its wide base of UK and international shareholders. Nevertheless, the share price has taken a dive, meaning our largest utility company is now cheap as chips. OK, it’s valued at £30bn, so it’s not really that cheap, but at 870p per share it’s certainly trading at a significant discount to previous highs of 1,135p.

At current levels National Grid offers investors an electrifying yield of 5.2%, with the promise of dividend payouts that rise at least by the rate of inflation each year. As for the battered share price, from hereon in I reckon the only way is up.

The post Should we now pile into National Grid plc after crashing 20%? appeared first on The Twelfth Magpie.

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Bilaal Mohamed has no position in any 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.

So how can we profit from this phenomenon? We can become shareholders of course. But with six huge companies to choose from, which one(s) should we invest in?

Government crack-down

Well, you’ll be surprised to learn that only two of the UK’s ‘Big Six’ energy suppliers are listed on the London Stock Exchange, the rest have been taken over, with some now under foreign ownership. That leaves just SSE (LSE: SSE), which was formerly Scottish and Southern Energy, and Centrica (LSE:CNA), the owner of British Gas and the UK’s largest domestic supplier of gas and electricity.

The share prices of both these FTSE 100 stalwarts have come under pressure lately as Theresa May’s government promises to crack down on the Big Six, with the potential for industry regulator Ofgem capping the default standard variable tariffs until 2023. Needless to say, this will have a big impact on the profits of our two remaining listed energy giants.

But this threat has been lingering for some time, and the market has already responded by wiping billions of pounds off the value of SSE and Centrica’s shares, leaving them trading at multi-year lows, and further inflating the yields on their generous dividends.

Inflation-beating returns

In recent years SSE has performed the better of the two, suffering to a lesser extent from the effects of customers switching to alternative suppliers. As a major utility play, the energy giant has always been seen as a relatively safe place to park savings and earn inflation-beating income.

The Perth-based group has continued to reward shareholders with handsome payouts, with management working towards achieving dividend cover within a range of around 1.2 to 1.4 times earnings going forward. To me the dividend looks pretty safe.

SSE’s shares have suffered from recent concerns over plans to cap energy prices, leading to a share price slump to near three-year lows, while at the same time swelling the prospective dividend yield to 7%. Despite the recent noises from Ofgem and the government, I still see the utility giant as a safe place to stash your cash and generate steady and reliable income.

Monster yield

Meanwhile, in a trading update last month, rival Centrica warned that full-year earnings for 2017 would be below market expectations, reflecting lower-than-expected operating profit in its business divisions both in the UK and North America.

Management attempted to reassure investors concerned about the sustainability of its dividend, pointing out that the current year shareholder payouts were underpinned by net debt which was within its target £2.5bn-£3bn range, along with £2bn of operating cash flow. Unfortunately, that didn’t stop the shares plunging to 18-year lows.

Yet at current levels, Centrica’s prospective yield equates to a massive 8.3%, according to consensus forecasts, and even if management was forced to trim the dividends in the future, we’d probably still be left with a yield that beats most of its blue-chip peers.

The post Profit from cold winters with Centrica plc & SSE plc appeared first on The Twelfth Magpie.

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Bilaal Mohamed has no position in any 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.

New Ferrari

But, as with most things in life, it’s not always as straightforward as it seems. For example, it’s very possible that a director has sold a big chunk of his or her holding simply because they are splashing out on a new yacht, Ferrari, country mansion or divorce settlement. So it’s always best to view such dealings as triggers for further research, rather than outright buy or sell signals.

Personally, I always find it interesting when there is heavy buying activity from directors shortly after a profits warning. Here, company bosses may feel the market has over-reacted to what they perceive as short-term fixable issues. But this can sometimes be a ploy to shore up investor confidence. Oh, I’m such a cynic!

iPhone 8

A great recent example of this would be FTSE 100 electricals giant Dixons Carphone (LSE: DC). In a trading statement issued last month the group said it now expects pre-tax profits for FY2017/18 to be in the range £360m-£440m – well below previous market expectations. The news sent the shares tumbling by as much as a third on the day. This prompted some directors to swoop in and buy a big block of shares on the cheap – often seen as a sign that management is expecting a recovery in the not-too-distant future.

The earnings downgrade was largely due to weaker mobile phone sales as well as the detrimental effects of lower EU roaming charges. The company said that currency fluctuations had made handsets more expensive ,and this in turn has meant that people are holding on to their mobile phones for much longer.

I’ve been a fan of Dixons Carphone for a while, and although the launch of the new iPhone 8 should help to boost sales in the medium term, I think the risks have now become too great for me to give the stock a buy rating for capital growth. However, the lower share price does make the stock more attractive to income seekers, with the shares now offering a generous yield of 6%, and ample dividend cover of more than two times forecast earnings.

Fall from grace

Another company that’s been having its fair share of problems in recent times is FTSE 100 utility giant Centrica (LSE: CNA). The parent company of British Gas has seen its share price halve from above £4 to below £2 in just four years. For a defensive blue-chip utility giant that’s a huge fall from grace.

Increasing competition in the energy market has led to a large numbers of customers switching to other suppliers, which in turn has weighed on profits. Nevertheless, a strategic review of the business has been implemented, which aims to reduce costs by £750m a year by 2020, with the company also having some success tackling its debt. I still see the shares as attractive for income seekers, who stand to collect a solid 6% annual return at current levels.

The post Two high-yield stocks I’d still buy appeared first on The Twelfth Magpie.

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Bilaal Mohamed has no position in any 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.

But the energy giant is not the only income share I’d dump right now. Castings (LSE: CGS), for one, would also be on my ‘sell’ list today.

Worrying sales outlook

At first glance Castings’ latest trading statement on Tuesday may soothe the nerves of many investors. It commented today that “demand from our main customers remains steady which represents a continuation of the outlook reported in the Chairman’s statement in June.”

“Our efforts remain focused on developing work with both existing and new customers, with a concentration on core business that can be produced and machined within the group,” it added. Castings also reiterated its commitment to investing in production techniques and technologies to boost productivity and profits.

Still, there remains much to be concerned about over at the West Midlands business, in my opinion. It advised back in June that revenues dropped 10% in the 12 months to March, to £119m, while pre-tax profits reversed 19% to £15.9m.

And the political malaise in Britain is casting a long shadow over Castings’ revenues picture looking ahead. The company advised that “the situation concerning Brexit is creating a certain amount of concern in the manufacturing sector and the sooner the Government negotiates a deal to remove this uncertainty, the better it will be for planning the future.”

Although City brokers expect the iron castings play to endure another earnings fall in fiscal 2018, this time by 1%, the firm is still expected to keep its long-running progressive dividend policy in business. Last year’s 13.97p per share reward is predicted to improve to 14.6p in the present period, resulting in a very-handy 3.2% yield.

But given the probability that difficult Brexit negotiations will drag long into the future, and heap further pressure on Castings’ top line, I reckon investors should give the business short shrift right now despite its reasonable forward P/E ratio of 15.6 times

Switch off

Centrica’s reputation as a reliable dividend stock has gone down the tubes in recent years, of course. Against a backcloth of serious earnings weakness, the British Gas operator has been forced to slice up shareholder rewards, although the decision to hold the dividend at 12p per share in 2016 can be seen as something of a triumph as the bottom line continued to sink.

The profits pressure is not expected to cease just yet, a further 6% earnings decline being forecast for 2017. So despite its low valuation — Centrica sports a forward P/E rating of just 12.8 times — and the City expecting it to pay a 12.2p per share dividend in 2017 (yielding a mighty 6.1%), I would also  be tempted to shift out of the business right now.

Latest data from Energy UK showed 385,000 UK households switched power supplier in July, up 16% year-on-year as the strain on household budgets intensified. And Centrica’s decision to hike electricity prices for those on standard tariffs by 12.5% from next month is likely to drive even more customers into the arms of the cheaper, independent suppliers.

Given the increasing difficulties created by Britons’ growing switching culture, not to mention the additional strain created by depressed oil prices on its fossil fuel operations, I reckon investors should steer clear of the London business.

The post Centrica plc isn’t the only dividend share I’d dump today appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Castings. 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.

Eager to snap up a bargain following a steady share price fall, the energy giant has seen its market value rise 20% in the days running up to the accord, fuelling hopes that profits at Centrica Energy could be about to about to ride higher on the back of a recovering crude price.

But black gold prices have stagnated above the $50 per barrel marker as US shale producers ramp up activity and oil consumption remains less-than-robust. Indeed, the Energy Information Administration reduced its demand forecasts for 2017 and 2018 just this week.

Further disappointing fundamental news could send Centrica’s share price lower again, but as I’ve mentioned, this isn’t the British Gas owner’s only problem as the rising army of small, promotion-led independent suppliers chip away at its retail customer base.

Data from trade association Energy UK has shown the number of switchers picking up again in recent months, and as inflationary pressures rise in 2017 I expect Centrica to remain on the defensive.

These factors keep its long-term earnings outlook on an uncertain footing, in my opinion, and a forward P/E ratio of 13.9 times fails to reflect its high risk profile.

Meanwhile, I reckon the firm’s hefty debt pile, capex-heavy operations and poor revenues outlook could prompt further dividend cuts, in turn placing a 5.4% dividend yield for 2017 in serious jeopardy.

A home banker?

While macroeconomic turbulence in the UK and Asia could rock earnings growth at HSBC Holdings (LSE: HSBA) in the near term, for patient investors I reckon the banking colossus could provide very decent shareholder returns.

The business trades on a P/E ratio of 13.5 times for 2017 which, it could be argued, is good value given the company’s exceptional exposure to emerging and developed economies alike.

Indeed, HSBC could see profits explode in the years ahead as rising financial might in Asia propels demand for financial products. And an expected stream of Federal Reserve interest rate rises could help take the sting out of economic choppiness in its core regions in the meantime.

But it’s in the dividend stakes where HSBC sets itself apart. City analysts expect the dividend to remain broadly level through to 2018, at 51 US cents per share, as efforts to build up the balance sheet continue. This means the bank carries a 6% yield through to the end of next year.

And payouts at HSBC could potentially gain traction further out as cost-cutting measures click through the gears, while regulatory changes have given the bank more wiggle room in the balance sheet department. This helped the firm’s CET1 ratio rise to a healthy 13.9% as of September from 12.1% three months earlier.

Don’t get me wrong, the uncertain economic and political environment means HSBC is not without its own fair share of risk. But arguably the bank’s pan-global presence gives it a better growth platform than many of its British peers, and it’s thus worthy of serious attention at current prices.

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

The British Gas owner gave cause for cheer back in December when it announced the problems created by its slowly-eroding customer base had eased more recently. Indeed, Centrica commented that the number of accounts on its books was “broadly flat since the half year.”

This will come as some relief to investors as Centrica has come under sustained bombardment from the steady rise of smaller, promotion-led suppliers in recent years. This phenomenon saw British Gas lose almost 400,000 in the six months to June 2016 alone.

But there’s little sign that consumers’ rising demands for cheaper utility bills are about to dissipate. Indeed, latest data from trade association Energy UK showed a record 4.8m households switched energy provider last year, up 26% from 2015 levels.

And 33% more people changed supplier in December, the body commented, one-in-five of which took their business to a smaller supplier.

Against this backcloth Centrica is finding it increasingly difficult to raise prices to generate profits growth. And Ofgem raised the stakes still further for the so-called ‘Big Six’ operators by commenting last week that it sees no “obvious” reason why recent rises in oil and gas prices should be passed onto customers in the months ahead.

Meanwhile, those anticipating a sustained uptick in fossil fuel values — and with it a healthy revenues recovery at Centrica Energy — could find themselves disappointed as rising US shale production and weak oil demand globally keeps the market oversupplied.

There are clearly many risks to the City’s forecasts of a 7% earnings rebound at Centrica in 2017, a scenario that would end a predicted three annual dips on the spin. And I believe a forward P/E ratio of 13.9 times fails to properly reflect this.

Food for thought

I also reckon the earnings outlook is less than assured for supermarket struggler J Sainsbury (LSE: SBRY).

The London business surprised industry analysts earlier this month after announcing a rare improvement in like-for-like sales, up 0.1% during the 15 weeks to January 7. The news has sent the share price of Sainsbury’s to levels not seen since last spring.

But recent figures are clearly far too weak to suggest Sainsbury’s is over the worst. And on top of this, the retailer’s recent sales uptick still trails the recent performances of its mid-tier rivals. Tesco and Morrisons saw underlying revenues rise 0.7% and 2.9% respectively in the weeks surrounding the festive season.

Clearly Sainsbury’s still has its back to the wall as competition in the grocery sector heats up. And I believe signs of this stress in the firm’s next trading statement (slated for Thursday, March 16) could prompt investors to hit the exits once more.

Given the possibility of escalating sales woes, particularly as rising inflation heaps pressure on consumers’ spending  power, I reckon a forward P/E ratio of 13.1 times isn’t cheap enough to make Sainsbury’s an attractive contrarian pick.

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Royston Wild 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.

Music to the ears

There are countless smaller suppliers trying to gain a foothold in the energy market by offering excellent deals to customers willing to make the switch, but unfortunately the Great British public can sometimes be resistant to change, even if it means missing out on hundreds of pounds worth of savings each year.

Figures show that only four in 10 UK households have changed energy provider, with a uSwitch survey revealing that 44% of Big Six customers wouldn’t even consider moving to a smaller supplier. That’s certainly not good news for those seeking a more competitive market, but is probably music to the ears of stakeholders in the larger energy firms.

Profit from cold winters

For those looking to profit from cold winters and disappointing summers, there’s no better way than to invest in one of the larger UK energy suppliers. The question remains which one? Some UK-focused investors may be surprised to learn that only two of the Big Six suppliers are listed on the London Stock Exchange, the rest have been taken over, with some under foreign ownership.

British Gas is the UK’s largest domestic supplier of gas and electricity and is owned by FTSE 100 integrated energy giant Centrica (LSE: CNA). In its most recent trading update the Windsor-based firm said it was continuing to make good progress against its strategic priorities and now expects to exceed its original targets for 2016. The group also highlighted savings of over £300m as part of its £750m annual cost efficiency programme, with like-for-like operating costs likely to be lower than in the previous financial year.

Centrica continues to offer generous levels of income to its large army of private investors, with the 2016 payout expected to be lifted 2.5% to 12.3p per share, and by a further 3.5% to 12.73p per share in 2017, bringing the prospective dividend yield up to a chunky 5.4%.

Renewable energy

The only other London-listed Big Six energy supplier that investors can currently sink their chattering teeth into is SSE (LSE: SSE). Formerly known as Scottish & Southern Energy, the group owns Scottish Hydro Electric, Southern Electric, SWALEC and Atlantic brands, and is the UK’s largest generator of renewable energy.

The Perth-based group is expected to increase its revenues to £30bn this year with pre-tax profits exceeding £1.5bn. The inflation-proof dividend continues to rise with the prospective yield at 5.9% and 6% for this year and next. SSE is ideal for investors looking for a defensive utility with a reliable progressive dividend.

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Bilaal Mohamed 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.