After a year of intense pressure many of the FTSE 100’s downtrodden dividend shares are enjoying a bit of an early Santa Rally right now. With the near-term Brexit fog having lifted and a left-wing Labour Party vapourised in this week’s general election, Centrica (LSE: CNA) is one of the big yielders sailing northwards again.
So severe has been the sell off of its shares in 2019, though, that the energy provider still remains 37% lower from levels seen at the start of the year at 87p. And I doubt that the energy provider’s surge in post-election trade will continue in the new year as its customer base will probably keep on crumbling.
To give a flavour of the problem, latest data from Energy UK showed that a whopping 5.37m Britons switched energy supplier in the 10 months to October, up 9.2% year on year, which suggests that a new record high of annual switchers can be expected in 2019. Director of policy at the trade body Audrey Gallagher commented that “consumers continue to take advantage of the increased competition”, meaning that British Gas will probably have to undergo more profits-crushing price cuts to stem the flow to these cheaper, independent suppliers.
City consensus suggests that Centrica will bounce back from another heavy earnings fall in 2019 with a 36% bottom-line rebound in 2020. I consider this to be a fantasy, though, as it is contrary to the sort of news flow above and the firm’s own results.
So despite its low rating, a price-to-earnings rating of 9.4 times for next year and booming 5.7% dividend yield, I’m not prepared to countenance buying Centrica shares for even a second. It’s cheap because of its high-risk profile for the next decade and has all the hallmarks of a classic dividend trap.
Trump trashes trade talk!
I’d also be happy to give Evraz (LSE: EVR) a wide berth despite its meaty share price uptick in end-of-week business, to 385p per share. The steel producer and iron ore digger has been the FTSE 100’s biggest faller in the second half of the year and remains 20% lower from levels seen at the start of January.
Evraz has leapt more recently following reports in the Wall Street Journal that US President Trump had ironed out a limited trade agreement with his Chinese counterpart before new tariffs were set to be introduced on Sunday. But the commander in chief cut the report to ribbons, in classic Trump fashion, through comments on his Twitter account.
The Wall Street Journal story on the China Deal is completely wrong, especially their statement on Tariffs. Fake News. They should find a better leaker!
— Donald J. Trump (@realDonaldTrump) December 13, 2019
The situation is still extremely grim for Evraz, then, with trade wars between the US and its major trade partners remaining unresolved as we move into 2020, and key economic surveys from major economies like China and Germany still underwhelming. I expect the commodities play to keep sinking next year and so will happily ignore its low P/E multiple of 6.9 times and 9.2% dividend yield for next year, and will continue to avoid it.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019