The last five years have been tough for investors in British Gas owner Centrica (LSE: CNA), with the share pricebuffeted by everything from falling energy prices to populist politicians. Yet there has been one saving grace throughout, its red hotdividend, with the stock typically yielding between 5% and 6%, regardless of short-term storms.
That dividend survives today, currently yielding 5.3%, which should keep your portfoliofeeling toastywhatever the winter brings. But whither the growth?
Lifes a gas
There are some promising signs in todays trading statement, with management reportingthat Centrica continues to make good progress against its strategic priorities and now expects to exceed itsoriginal 2016 targets.
The update told usthat adjusted operating cash flow is expected to be in the range 2.4-2.6bn, with group capital investment of around 900m slightly below the 1bn limit set in the groups financial framework.Like almost everycompany I report on these days, Centricais slashing costs wherever it can, making efficiency savings of over 300m as part of its750m a yearcost efficiency programme.Like-for-like operating costs are expected to fallin 2016. Headcount is down more than 3,000.
Investors have warmed to the report, with the share price up 3.8% at time of writing, but I suspect they will remain suspicious, having got their fingers burnt before. Many people forget that Centrica is an energy producer as well as a utility supplier, and has been punishedby falling oil and gas prices. However, there may begood news on that front, provided that OPEC and non-OPECdeals hold, as this should force up the oil price.
My concern is that the production cuts havebeen over-hyped and will not hold. Traders hoping for an oil-price range of $60-$80 a barrel next year could be disappointed, especially as the US shalerig counts accelerates.
Still, there is plenty to like in Centricasstatement, including expected full-year 2016 adjusted earnings per share (EPS) ofaround 16.5p. That beats forecasts of 15.43p but in a sign of thetough times the group has endured, down from 26.60p in 2013. However, the rate of declineis slowing, and EPS are currently forecast to rise 6% in 2016, although that may be trimmed after todays update.
Plenty nowdepends on the weather, as Centrica group chief executive Iain Conn acknowledges. A cold winter would be good for Centrica, asBritons and North Americans turn up the heating(Centrica derives a third of its revenues from the US). However, latestforecasts suggest we may get a mild one, with bookies taking odds onthe warmest Christmas ever.
Start me up
Conn is happy to proclaim a strong performance in the second half of the year, with thecompany exceeding its 2016 targets. We have made considerable progress in reshaping our portfolio and capabilities to deliver a robust platform for customer-focused growth,he says.
A mild winter may blow no good for Centrica but otherwise the future looks brighter than for some time. The income machine will roll smoothlyon, despite relatively thincover of just 1.4. The growth may also come, in fits and starts. Today, at least, is a start.
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Harvey Jones 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.