Having fallen by 37% in the last year, it is little surprise that many investors are uncertain about the outlook for Centrica(LSE: CNA). The company has experienced a hugely challenging year, with its trading performance being behind expectations and political risk continuing to build towards the wider domestic energy supply industry.
One consequence of its falling share price has been a rise in its dividend yield. It now stands at 8% and while there is a chance that payouts will be cut over the medium term, the dividend potential of the company remains high. That said, it is not the only income stock which could be worth buying right now. Reporting on Wednesday was a gold miner which could be a surprisingly strong income opportunity.
The company in question is Centamin(LSE: CEY). Its fourth quarter production results were positive, with gold production being 154,298 ounces. This is a 12.8% increase versus the same period from the prior year and means that full-year gold production was above guidance of 540,000 ounces at 544,658 ounces.
Looking ahead, there could be further growth in production. Guidance for 2018 is 580,000 ounces, which would represent a 6% rise from 2017. There is expected to be a relatively balanced quarterly production profile during the year, with a forecast cash cost of production of $555 per ounce and an all-in-sustaining cost of $770 per ounce. This means that even if the gold price declines significantly from its current level of $1315 per ounce, Centamin is likely to remain highly profitable.
With a dividend yield of 3%, the company may not be the highest-yielding share around. However, its shareholder payouts are covered around 1.7 times by profit, which suggests they could rise at a rapid rate. That's especially the case since earnings are forecast to rise by 14% in 2018, which could positively catalyse dividend payments over the next few years.
Of course, back with Centrica, its future is difficult to predict. It is currently delivering its restructuring and expects to reduce costs significantly over the coming years. However, with a large amount of change ongoing at the company, investor sentiment could remain weak. This could keep the stock pegged back in terms of its investment performance. And with heightened political risk now that inflation has moved higher, the defensive status of the utility sector may be less than had previously been anticipated by some investors.
However, with such a high dividend yield and the prospect of an improved business model over the medium term, Centrica still seems to be a stock worth buying today. It may take many years for it to deliver strong capital growth, but in the meantime its 8% dividend yield should provide a relatively sound total return even at a time when the FTSE 100 continues to make record highs.
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Peter Stephens owns shares in Centamin and Centrica. 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.