Investors wait to see if British Gas owner will cool its dividend
Centrica, the owner of British Gas, is set to update the market on Tuesday with its latest set of half-year results.
However, the key indicator analysts and investors will be keeping an eye on is Centrica’s dividend, which has been one of the most speculated payouts on the FTSE 100.
The dividend yield – which is calculated based on the size of the dividend compared with the share price as a percentage – is the highest on the blue chip index at a huge 13.4% and analysts predict it is now unsustainable.
Russ Mould, investment director at AJ Bell, said: “Chief executive Iain Conn has also staunchly defended the 12p-a-share dividend, even though earnings covering the payment is thin.”
Dividend yields tend to be in the low or mid-single digits, but Centrica’s share price has collapsed by 43% in the last 12 months, and 37% so far this year, meaning the dividend yield automatically rises.
But Mr Mould reckons investors in the company, which also generates cash from oil and gas exploration and production, have already priced in that the dividend will be cut.
He said: “The share price slide suggests that investors feel the dividend is not sustainable and that they are giving Centrica no credit for making the payment.
“A cut seems sensible (and unlikely to shock), especially as a 12p dividend implies a yield of 13.4% (the highest in the FTSE 100), which looks absurd.”
He predicted a cut to around 7.4p per share, whilst analysts at Jefferies went further, suggesting a 50% cut to 6p a share.
Centrica will also update the markets on its latest customer numbers. The Big Six energy suppliers – British Gas, E.ON, EDF, SSE, Scottish Power and Npower – have all lost out to smaller rivals in recent years offering better customer service and cheaper prices.
Last year, Centrica revealed British Gas lost 742,000 customers, although it was half the number lost in 2017.
Privately, the company has been saying it wants to put quality over quantity and focus on customers who will also buy extra products and services from British Gas.
Energy experts will be looking for clues on how the Government’s price cap is working, following its introduction in January.
Centrica has been a vocal critic of the cap and is challenging regulator Ofgem in the courts over how it is calculated. Mr Conn has previously said it would hit the business to the tune of £300 million.