Its good news for consumers but is it good news for shareholders in Centrica, which owns British Gas?
Political interference aside, one likely reason for Centricas price cut is that utility peer E.On jumped the gun last week, announcing an immediate 3.5% price cut for gas customers.
Centricas response a 5% price cut from February 27 looks quite calculated. I imagine that the firm is hoping to benefit from higher prices during the current cold spell, while discouraging customers from leaving British Gas and moving to E.On.
Can Centrica afford it?
I suspect that todays cut will be successful in helping the firm retain customers who werebeginning to think about jumping ship to E.On.
On the other hand, British Gas accounts for nearly half of Centricas operating profits, and this cut will eat into the firms profit margins, at the same time as revenues from its oil and gas division are also falling.
Is Centricas 6.6% yield safe?
Current consensus forecasts for Centricas dividend suggest a total 2014 payout of 17.5p, which equates to a mammoth 6.6% yield at todays share price. Todays price cut wont affect the firms 2014 results, and I suspect that Centricas dividend for 2014 will also be safe.
However, its increasingly hard to see how Centrica can maintain this payout for another year, especially if gas and oil prices remain lower for the remainder of 2015.
I suspect that 2015 may be the year in which at least one UK utility is forced to cut its dividend payout.
What about SSE?
Interestingly, while Centricas share price remained unmoved following todays price cut announcement, rival SSE (LSE: SSE) slipped by around 1.5%.
SSE shares are now nearly 9% lower than they were at the start of the year principally because the market is losing confidence in the utilitys ability to maintain its chunky dividend, which currently offers a prospective yield of around 6%.
SSE has yet to announce a price cut, but I suspect it is now only a question of time and I expect SSE to face the same dividend pressure as Centrica in 2015.
Of course I may be wrong. Both Centrica and SSE may manage to maintain their dividends in the face of falling energy prices.
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