British Gas ownerCentrica (LSE: CNA)and energy transmitter and distributorNational Grid (LSE: NG)had markedlydifferentfortunes this year.
Centrica has fizzled out, falling 25% over the past 12 months, while National Grid has shown a little more spark, falling just 2% in what has been a difficult year for stock markets. Utility companies are supposed to be defensive plays but asthese two have shown, they are still subject to wide performance swings.
Cooking With Gas
Investors might have expected a better year for Centrica, certainly after the shock Conservative election victory in May, which put an end to former Labour leader Ed Milibands price freeze plans. But the joy was short lived, with a 30% cut in the interim dividend after underwhelming first-half results. Centrica still has fans at Citi, which rates the stock for its averagefree cash flow yield of 8% andsustainable dividend yield of 5.3%, plus its potential to beat its 750m cost-cutting target.
Trading at 11.1 times earnings, I remain a fan as well. Despite that dividend cut, it is still on a forecast yield of 5.6% for the end of 2016. Sadly,growth prospects look tepid. Net profits are forecast to fall slightly to 1.23bn in 2016, with zero earnings per share (EPS) growth. Despite presshype about an El Nio-inspired big freeze this winter has started off mild, which isbad news for Centrica if it continues. This utilityis still a sound long-term buy, though.
Off Grid
I have consistently been more positive about National Grid, given its position as a virtual monopoly in a heavily regulated industry. Last month itposted strong first half earnings growth, including a 21% rise in profit before tax to 1.37bn and a 22% jump in EPS.
The forecastyield is lower than Centricas at4.8% but at least it hasnt had to suffer the ignominy of cutting it. Although covered just 1.4 times, it may not have that much scope for progression at the moment. Inevitably,it is more expensive than Centrica at 15.1 times earnings. With forecast EPS growth of just 1% to31 March 2017 investors cant expect too much juice, although it should be enough to fulfil soon-to-depart chief executive Steve Hollidays pledge of a sustainable, growing dividend.
National Grid remains a solid portfolio anchor, and there may be a treat in store, following reports that it maysell a majority stake in its UK gas distribution business and use it funda special dividend. That should increase its asset growth rate from 5% to 7% year, management says, giving the stock a bit more buzz.
Following its 25% drop Centrica is a tempting opportunity. National Grid looks to have steadier prospects. Neither is set to sizzle, but in a low-income world, their yields should still light up your portfolio.
There are plenty more top dividend stocks on the FTSE 100 and many offer far better growth prospects as well.
Find out where they are hiding by readingthisMotley Fool FREE wealth creation report5 of the best FTSE 100 stocks you can buy today.
All five blue-chipsnamed in the report are ideally placed to deliver a heady combination of generous dividend payouts and long-term share price growth over the years ahead.
To find out their names and see how they could help you secure a comfortable retirement, simply download the documentThe Motley Fool’s 5 Shares To Retire On. The report won’t cost you a penny, soclick here now.
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.
