Wed, 31st Jul 2019
Centrica, the owner of British Gas, has just cut its dividend, and also announced that it plans to exit oil and gas production.
Centrica has been a good dividend payer for some time now, but many analysts were expecting that they would cut payouts soon. The company says that they have faced an exceptionally challenging first half of the year, and that they will be rebasing their dividend because of changing circumstances in the UK, including energy price caps as well as pension contributions and other demands on their cash flow. They also announced that their chief executive Iain Conn plans to step down next year.
Centrica plans to cut its annual payout to 5p, from 12p, which would be a cut of around 58%, greater than analyst expectations, and enough to send shares down by 12% following the news.
The new dividend yield is still around 6.2 percent, which is an attractive yield, and the plan is for Centrica to deliver a progressive dividend in the long term, linked to the company’s earnings and cash flow growth. This means that it could still be attractive to investors who are willing to hold on to the shares in the long term.
However, while Centrica has always been a reliable company it has not been performing well in recent months. They showed a 63% fall in adjusted earnings over the first half of the year, and statutory earnings are down, from £238 million, to a £550 million loss. This is enough to leave some investors questioning whether they will be able to turn themselves around.