Centrica (LSE:CNA) shares are ranked amongst the top three FTSE 100 performers over the last year. Being a seasoned UK energy giant, its shares have jumped 48% in the last 12 months of trading. And I think this could be the start of a big bull run in 2023. 

The surge in its share price is primarily because of the energy crisis in the UK and Europe. Rising fuel costs are causing strong inflation in the region. Germany was in the news earlier this week when inflation hit its highest level in almost 50 years. Nine other countries in the region have registered double-digit annual inflation, thanks to a big spike in August. 

A recent report from the International Energy Agency showed that coal prices will remain close to all-time highs for at least the next six months. As a result, energy companies could see a further surge in earnings in 2023. And I think investors have rightly been clamouring to buy renewable energy shares in the UK while they are still cheap.

Centrica share price has strong momentum

Centrica is one of the largest suppliers of electricity and natural gas to consumers in the UK and Ireland. The company operates British Gas, which provides gas to over 9m homes across the country. 

Just this week, UK wholesale gas price tumbled by more than 20% thanks to Centrica’s efforts to reopen UK’s biggest gas storage facility located under the North Sea. However, despite this drop, prices still remain 12 times higher than 2021 levels.

While many investors will look at this as a step to reduce gas prices, I think this still benefits the firm. Gas storage facilities will now maintain reserves at 80% capacity. This is to avoid any abrupt supply disruptions when Russia further reduces gas exports before the winter. This means that British Gas‘ reserves could quickly jump in value again if reserves drop in early 2023.

This is the main reason why I think Centrica shares look cheap right now despite the 143% rise since 2020’s crash. At 77.8p, its share price is currently 20% lower than 2022’s highs of 93p. And I think the company can post new post-pandemic highs if current demand continues in 2023. 

Concerns and verdict

However, this is firmly dependent on how the UK government handles the current energy crisis. Relief measures, including cash payments to households, have been deployed to reduce the impact on the public. European leaders are turning to other major exporters like the Middle East and the US. However, given the demand, this could become expensive.

The price of crude oil is a big factor that Europe and UK will have to address. Companies, including Centrica, have an established renewable energy network. But if they are forced to increase green energy capacity, it could put pressure on operations and cash reserves. This could put off investors as profit margins and revenue will be affected. 

While this energy crisis is concerning, it also presents an opportunity. Centrica holds prominent green energy assets and is a market leader in the UK. The gas giant could play a substantial role in providing the infrastructure to help the UK transition.

I am bullish on the company and could be tempted to invest in Centrica shares if there is a significant correction in the coming months.  

The post Here’s why Centrica shares could be a big winner in 2023 appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Suraj Radhakrishnan 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.

Energy firm Centrica (LSE:CNA) has seen its shares climb in recent times due to rising prices. Have I missed the boat here, or could I still buy the shares and benefit?

Centrica share price benefits from rising prices

As a quick reminder, Centrica is best known as the owner of British Gas, which is one of the largest residential suppliers of gas and electricity in the UK.

So what’s happening with Centrica shares currently? Well, as I write, they’re trading for 82p. At this time last year, the stock was trading for 49p, which equates to a 67% return over a 12-month period.

The Centrica share price was unaffected by the stock market dip when macroeconomic headwinds and the tragic events in Ukraine came to a head in early March. At the time many UK shares were affected and some still haven’t recovered.

Risks to note

Despite recent positive performance, I can’t help but wonder if this turnaround could be short-lived. Much has been made of the energy price cap increasing in recently. There has even been talk of the government getting involved to cap the rise in prices. This could definitely see recent positive performance curtailed to a degree. I believe this could impact Centrica shares and investor sentiment. This is a key development I would keep a very close eye on.

Next, Centrica has a chequered performance track record, although I am aware that past performance is not a guarantee of the future. For example, its most recent half-year report made for excellent reading. But just last year, the firm had debt on its books. Furthermore, due to the current cost-of-living crisis, people are looking at cheaper alternatives for utilities, which has impacted cash flow for the business significantly.

The bull case and my verdict

I can understand why the Centrica share price has been climbing, especially based on its most recent results. The half-year report released at the end of July was excellent. Net debt at the same time last year turned into a positive position of over £300m this half year. Next, revenues nearly doubled compared to 2021 too. Finally, the business was able to declare an interim dividend. This dividend amounted to 1p per share. Despite the small amount, this is a positive as it means Centrica’s dividend has returned after a two-year hiatus.

So with Centrica paying a dividend once more, what sort of levels of returns am I looking at? Currently, the dividend yield stands at close to 1.5%. I believe if energy prices continue rising in the same vein, this level of return could increase.

Finally, Centrica has decided to restructure and streamline the business. It has sold foreign assets and is focusing on expansion in more lucrative business units like British Gas as well as green energy alternatives.

Overall I would be willing to buy a small number of Centrica shares for my holdings. With the current state of the market, and the fact Centrica is in a much better position from a balance sheet and market share perspective, I would expect the Centrica share price to continue to rise as well as returns to increase too.

The post As the Centrica share price continues to climb, am I too late to buy shares? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Jabran Khan 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.

Now, I’m not fond of buying shares after a such great run. After all, while market timing is not a smart game to play, neither is ‘buy high, sell low’!

But here’s a couple of great reasons why I believe that Centrica’s share price run might not yet be over.

Will Centrica restart paying dividends?

Will it or won’t it restart paying a dividend? We’ll know on Thursday, when Centrica declares its first half results. But certainly the expectation is yes, and that’s got to be a good thing for the Centrica share price.

Like many others, the group, perhaps still better known as British Gas to most, suspended its dividend back in 2020 while pandemic uncertainty was at its highest.

Previously, though, it had been a reasonably consistent dividend payer, with a smooth growth rate throughout 2000–2013:

If things go as expected on Thursday, analysts expect Centrica’s chief exec, Chris O’Shea, to confirm an interim dividend of 1p and a final yearly dividend of around 3p-3.5p.

That would give a forecast yield of around 3.5%. Which while not exceptional, it’s certainly back in contention with other popular shares like Lloyds. But I think there’s even more potential for upside on the Centrica share price.

Can Centrica profit from winter gas price volatility?

It’s hard to escape from the news that this winter could be tough on the energy front. With the Russia/Ukraine war continuing to impact gas prices it’s only going to get tighter as demand goes up later this year.

Previously, energy traders would use gas storage to monetise volatility in the gas markets. The closure of Rough, the UK’s main gas storage facility, back in 2017, pretty much took that option (pun intended) off the table.

The closure was driven by cheap energy prices (remember those?!) and ever-rising maintenance costs making it uneconomical to run. Clearly, it’s a different picture these days, with prices sky-high as Russia continues to threaten to cut gas supplies to Europe.

With a UK Government keen to increase energy security, it will make for an interesting conversation with Centrica on how much they are prepared to pay to help support the reopening of Rough.

Are Centrica shares a risk worth taking?

As with all predictions, they may or may not come to pass. Pressure on the government, whoever ends up leading it, to “do something” may well see more painful decisions for Centrica. It’s not impossible to see rises ahead for the new Energy Windfall tax introduced earlier this year, for example.

But overall, I think there’s some real positive potential behind the Centrica share price for the first time in a long while. I’ll be keeping a close eye on them when it comes to my next share purchase for sure.

The post Centrica share price: 2 good reasons it may burn hotter yet! appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Michelle Freeman has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. 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.

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.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

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.

Investors were celebrating the news that the group is selling its US energy business to NRG Energy for £2.87bn, as part of a much-needed turnaround plan. The Centrica share price has been one of the worst FTSE 100 performers in recent years, falling 82% over the last five years. The fightback is now underway.

Centrica has been hit by a combination of weaker oil and gas prices and disgruntled home energy customers leaving in droves. The Covid-19 stock market crash made a bad situation worse. Business energy demand fell sharply as offices and factories locked down. Centrica reported a 9% drop in first-half revenues to £12.5bn on Friday, while underlying operating profits fell by 14% to £343m.

FTSE 100 bargain buy

The group posted an operating loss of £135m after restructuring costs and impairment charges. At least that was an improvement on last year’s £446m loss.

In normal times, these results wouldn’t have triggered such a surge in the Centrica share price, but these aren’t normal times. It helped that the Direct Energy sale will attract £1bn more than analysts reckon it’s actually worth in the current climate.

The proceeds will go towards shrinking Centrica’s debt, which is already in decline. It now stands at £2.8bn, down £400m since the start of the year. It’ll also help narrow the group’s £522m pension deficit.

Like many other companies, Centrica is taking advantage of the crisis to cut costs and jobs, and accelerate its plans to simplify the group. Management has targeted annualised cost savings of £2bn between 2015 and 2022. It now looks set to achieve that in 2021, one year early.

I’d buy the Centrica share price at today’s level

The Direct Energy sale will make up for the frustrations Centrica has faced when trying to offload its nuclear and oil & gas businesses. Given the current uncertain energy market, its struggle to find buyers looks set to continue for some time.

The Centrica share price looks cheap today, trading at just 6.46 times earnings. You don’t get any income with that, as Centrica put its dividend on hold during the pandemic. Despite that, I think now’s starting to look like an attractive entry point.

Centrica continues to bleed retail customers though, with another 100,000 or so households moving on in the last six months, including 62,000 British Gas clients. The end of the lockdown should revive energy demand from businesses and, at some point, that dividend will be restored.

The road to recovery may be long, but management seems to be heading the right direction. If I had £1k to invest, I’d consider buying the Centrica share price today.

The post £1k to invest? I think the Centrica share price is a top FTSE 100 buy today appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Harvey Jones 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.

Those remaining loyal could be forgiven for thinking that things couldn’t possibly get any worse. Unfortunately, that’s just what’s happened following today’s publication of a horrific set of full-year figures for 2019.

Let’s take a closer look at what’s caused more investors to throw in the towel. 

“Challenging environment“

As a result of falling natural gas prices, the introduction of the energy price cap by the government, and nuclear power station outages (collectively referred to as a “challenging environment“), the battered firm reported a huge 35% fall in adjusted operating profit to £901m. On a statutory basis, an operating loss of £849m compared to 2018’s profit of £987m was reported. 

As one might expect, outgoing CEO Iain Conn tried to put a positive spin on things, highlighting that the company had managed to stem the outflow of customers to rival suppliers, make costs savings and keep adjusted operating cash flow and net debt within their target ranges. He went on to say that “performance during the second half was much improved compared to the first half”.

To say that the market was left unconvinced is putting it mildly. With shares down 17% today, I’m left wondering if there could be even more pain ahead. 

Value trap

Before this morning, analysts were expecting a near-30% jump in earnings per share in 2020. Given that Centrica has now warned that it expects “very low current wholesale commodity prices” to continue impacting its operations, I suspect they may be reaching for their calculators again.

As such, I’d treat the valuation of just 9 times forecast earnings before the market opened with caution, even after the capitulation of its share price. The fact that, only yesterday, Swiss bank UBS suggested that Centrica was a ‘buy’ with a 110p price target shows the problems inherent in trying to ascribe a value to the company as it stands.

That the business appears to have slowed the rate of customers leaving it for other suppliers does not, of course, change the fact that the firm still faces huge competition going forward. Other, more nimble operators will simply continue to offer enticing rates to consumers who, thanks to the ease of switching, are now far less loyal than they once were.

This being the case, I actually think there’s a fair chance of another cut to the dividend in the future. Analysts have been penciling in a 5.08p per share cash return in FY20. That equates to a yield of 7.3% – well above the level at which investors traditionally begin to question whether such payouts are sustainable. 

Adding to the pain is the recent news that Chair Charles Berry – who was taking the lead in searching for a new leader – will be taking time out to address a medical condition. This is yet another setback for a company that also faces the growing possibility of being ejected from the FTSE 100 (with a subsequent knock to the share price).  

Taking all of the above into account, I remain convinced that investors should continue to avoid this value trap like the plague.

The post Here’s why the Centrica share price plunged another 17% today appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

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.

Evraz

Russian steel producer Evraz (LSE: EVR) is quite some stock. Right now, it looks set to yield an incredible 13.7%, the highest on the entire index. Of course, this will start alarm bells ringing for many. It has been called the riskiest stock on the entire FTSE 100, because management has got into the strange habit of running up debts, while lavishing money on shareholders.

Last year’s half-yearly report said net debt increased by $79m to $3.65bn, largely due to the recognition of additional liabilities under new IFRS 16 financial reporting standards. Net profit fell sharply to $344m, down from $1.15bn year on year, due to falling steel prices. Depressed vanadium prices, lower average coking coal prices, and the lifting of US tariffs on Canadian steel imports didn’t help.

Management still lavished shareholders with more than $500m in dividends, citing a positive outlook, the strength of the Russian steel market, and its continuing efforts in efficiency improvements. Last week’s Q4 trading update was broadly positive, with crude steel output up 2.1% over the quarter, and steel product sales up 6.6%.

The Evraz share price is valued at just 7.5 times earnings, which looks a bargain. Its yield is forecast to fall to 9.3% in 2020, but that is still hugely generous. The 35.16 payout is expected to be covered 1.57 times by forecast earnings of 55.32p. I can’t find anything particularly disastrous in these figures, making it a tempting buy, but I’m also a bit unsettled. I don’t quite understand what management is up to, and as Warren Buffett said: “Never invest in a business you cannot understand.” 

Centrica

British Gas owner Centrica (LSE: CNA) used to be called a defensive stock, but nobody uses that term today. 

The Centrica share price now trades 70% lower than it did five years ago, turning a £10k investment into just £4k including reinvested dividends, after a dismal period for the company. Centrica was punished by falling energy prices and disgruntled home energy customers, who switched to cheaper rivals in droves, triggering a blizzard of profit warnings and dividend cuts.

Until recently, the prospective yield briefly stood at 13.68%, but please don’t buy expecting that kind of income today, because the rebased payout currently offers a forecast yield of just 5.5% for 2020.

I feel more comfortable with this, especially since earnings are now expected to rise 31% in 2020. That would see the anticipated 5.03p payout covered 1.66 times by earnings of 9.13p a share, which looks a lot more sustainable.

There are signs of a share price recovery in recent weeks, which suggests that Centrica may finally be finding its feet. I’d shop around, though, because you might find more solid FTSE 100 high yielders out there.

The post I’m sorely tempted by these 2 ultra-high-yield FTSE 100 dividend stocks appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Harvey Jones 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.

Life’s not a gas

Just look at British Gas owner Centrica (LSE: CNA). Of all the stocks listed on the FTSE 100, it is one of the worst performers over the last 10 years. My figures show the Centrica share price traded at 280p on 27 December 2009, but just 90p today. That’s a drop of more than two-thirds, so if you had invested £1,000 a decade ago, you would have just £322 now.

Actually, you should have a bit more as Centrica has paid dividends throughout its slump, but you would still be sitting on a heavy loss (unless you sold, of course).

On the other hand, if you had put your £1,000 into the best performing stock now listed on the index, JD Sports Fashion, you would have £32,000, with dividends reinvested, AJ Bell figures show.

Spread the love around

You can make a huge amount of money on the stock market, but as Centrica investors have learned, you can lose it too.

That is why we urge people to build a diversified portfolio of stocks, so that if some underperform, others should compensate. Alternatively, put your money into a FTSE 100 tracker, such as the iShares Core FTSE 100 UCITS ETF, or other indices such as the FTSE 250 or US S&P 500, to spread your risk across a wide range of stocks.

So what went wrong at Centrica? Pretty much everything, actually.

Customers have been leaving in droves, around 100,000 a month at its peak, complaining about high prices and poor service. That works out as more than a million a year, and although Centrica still has nearly 12 million accounts, no business can take that kind of loss (although the outflow has slowed lately).

Last year, its shares hit a 15-year low. This year, a 22-year low, as they took a £70m hit from the new energy price cap, more than any rival.

Low energy

Its oil and gas exploration and production business was punished by falling energy prices, and the company is now is looking to exit that market in 2020. It will also sell its 20% stake in EDF Energy’s nuclear reactors.

Centrica is shrinking.

Outgoing chief executive Ian Conn is rightly taking most of the blame, with the share price down three-quarters on his watch, and dividends slashed. New ventures such as the smart home business, which includes its Hive smart thermostats, were supposed to generate £1bn of revenue by 2022, but will be lucky to produce a fifth of that.

Others blame predecessor Sam Laidlaw, who bought up oil and gas deposits when his time may have been better spent investing in the increasingly rewarding wind power market.

Things can only get better, can’t they?

Comeback kid?

There are signs of share price recovery, with the stock up 22% in the last month, boosted by Boris Johnson’s victory, which halted British Gas nationalisation fears. Earnings are forecast to drop 38% in 2019, but jump 36% next year. So that’s something.

The forecast yield is 5.6%, with cover of 1.4. Maybe this time it won’t be cut. Centrica trades at 12.4 times forward earnings. The big question is where will growth come from? If this beaten-up stock manages to recover, it would be the turnaround of the next decade.

I’m not holding my breath, though.

The post This is how much £1K invested in Centrica 10 years ago is worth today. It’s ugly appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. 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.

Brexit is on

Arguably the biggest consequence of the election outcome is that the Conservative Government can now pursue it’s campaign pledge to ‘Get Brexit Done’ and leave the EU by the end of January.

After so much uncertainty for so long, this outcome has seen sterling soar to its highest level against the dollar in 18 months — good news for UK-focused companies, hence why the FTSE 250 is showing big gains this morning. The rapid rise also has implications for the FTSE 100 given that the vast majority of companies in the top tier generate most of their earnings overseas. The index is still up strongly, but the gains are less pronounced.

Big winners

Another development is that those companies on Jeremy Cobyn’s wishlist for nationalisation are now safe. These include battered postal service Royal Mail, energy provider Centrica and communications giant BT. No surprise then that these are some of the biggest winners today.

Of course, this relief rally does not necessarily mean that these companies are suddenly worthy of your cash. Royal Mail must address declining letter volumes; Centrica must deal with the rise of nimbler competitors; BT still has its pension deficit. A rising tide lifts all boats temporarily, even those with a few holes. 

Other winners worthy of mention include housebuilders such as Persimmon and financial heavyweights such as Lloyds Bank and Barclays, perhaps due to the likelihood of a speedy Budget. In the FTSE 250, investment platform AJ Bell was among the top risers, presumably because people will now be more willing to put their money to work in the stock market.

So it’s safe to invest? 

Certainty on Brexit will be welcomed by businesses, even if departing from the EU isn’t what many wanted. From this point of view, Johnson’s win does make life easier for market participants in the short term.

Here at the Fool UK, however, we’re in it for the long term. By this, I mean that we recognise that the political world is in a constant state of flux and trying to predict anything is asking for trouble. The 2016 referendum result surprised many. Few believed Donald Trump would win.

Boris Johnson’s victory will be cheered by those in the City for now, but that’s not to say that the positive momentum we’re witnessing today will continue. One prediction I can reliably make is that investors always find something to worry about.

It’s important to recognise, for example, that our actual departure from the EU is merely the first stage of Brexit and that there are many more hurdles ahead for Boris Johnson to negotiate, all within an extremely tight deadline. A no-deal EU departure still can’t be ruled out. The outlook is clearer but no less difficult.

For this reason, I think it’s best to focus on what research has consistently shown, namely that equities have provided the best returns over time; more so than bonds, property or commodities like gold. 

Last night’s result will generate cheers and tears. For Fools, however, the script is the same: buy a diversified bunch of great companies at reasonable prices and learn to sit on your hands. 

The post Boris Johnson wins a massive majority. Is it now safe to invest? appeared first on The Twelfth Magpie.

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Paul Summers owns shares of AJ Bell PLC. The Motley Fool UK has recommended Lloyds Banking Group. 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, as investors found out a few months ago, Centrica’s earnings can be highly volatile. The company was forced to slash its dividend by 60% earlier this year. That followed six months of operational problems, including unplanned outages at UK nuclear power plants in which Centrica holds stakes. 

Furthermore, it looks as if the business is struggling to generate enough cash to invest in its operations and return money to shareholders. 

Raising money

Since 2015, Centrica has divested stakes in wind farms and big power stations as well as taking an axe to costs. It’s also planning to sell its 20% holding in the UK’s operational nuclear power plants and its Spirit Energy business.

Following these divestments, Centrica is now 40% smaller (on a shareholder equity basis) than it was in 2013.

The problem is, the group cannot continue to sell assets forever. Sooner or later the company will run out of bits to sell. It’s difficult to tell what will happen in this scenario, but I think another dividend cut is highly likely.

The situation is made worse by the fact Centrica is just not growing. Revenues have hardly budged since 2015 and two new divisions, Connected Home and Distributed Energy and Power, which were supposed to transform the group and generate £2bn in revenue by 2022, have fallen flat. 

So, considering all of the above, I think shares in Centrica could fall further over the next few years. For that reason, I’d advise staying away. 

A growth champion

A better place for your money could be DCC (LSE: DCC). Unlike Centrica, DCC knows how to grow. Over the past six years, the company’s net profit has grown at a compound annual rate of 16.6%, and the dividend to shareholders has grown at 12.5% per annum.

As Centrica has shrunk by 40%, DCC has more than doubled its shareholder equity through a combination of bolt-on acquisitions and the reinvestment of profits. 

Considering this track record, I think the stock would be a much better income investment than Centrica. While the dividend yield is just 2% at the time of writing, it’s covered 2.5 times earnings per share, and, more importantly, DCC remains in growth mode. 

As the company continues to invest in its operations over the next few years, City analysts are expecting earnings to jump by more than 20%, freeing up more capital to invest back in the business and return to investors. 

According to my calculations, with another five years of 12.5% per annum dividend growth, the yield could hit 3.5% by 2024, and 6.4% after 10 years. On that basis, I think DCC has much better prospects than Centrica as a long-term income investment. 

The post Warning! I think this FTSE 100 dividend stock could make you poorer appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Rupert Hargreaves owns no share 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.