Does Centrica plc (LON:CNA) Have A Place In Your Portfolio?

Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Centrica plc (LSE:CNA) has returned to shareholders over the past 10 years, an average dividend yield of 5.00% annually. Does Centrica tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis. See our latest analysis for Centrica

Here’s how I find good dividend stocks

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

• Is their annual yield among the top 25% of dividend payers?

• Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?

• Has dividend per share risen in the past couple of years?

• Can it afford to pay the current rate of dividends from its earnings?

• Will it have the ability to keep paying its dividends going forward?

LSE:CNA Historical Dividend Yield May 27th 18

How does Centrica fare?

Centrica has a trailing twelve-month payout ratio of 199.53%, which means that the dividend is not well-covered by its earnings. In the near future, analysts are predicting a more sensible payout ratio of 83.42%, leading to a dividend yield of around 7.94%. Furthermore, EPS should increase to £0.14, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment. Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Dividend payments from Centrica have been volatile in the past 10 years, with some years experiencing significant drops of over 25%. These characteristics do not bode well for income investors seeking reliable stream of dividends. Relative to peers, Centrica produces a yield of 8.30%, which is high for Integrated Utilities stocks.

Next Steps:

If you are building an income portfolio, then Centrica is a complicated choice since it has some positive aspects as well as negative ones. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three pertinent factors you should further examine:

1. Future Outlook: What are well-informed industry analysts predicting for CNA’s future growth? Take a look at our free research report of analyst consensus for CNA’s outlook.

2. Valuation: What is CNA worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether CNA is currently mispriced by the market.

3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.