Centrica: An FTSE 100 Dividend-Raising Star

LONDON -- In an outcome that's tough on investors, the FTSE 100 has failed to deliver a rising dividend payout over the last few years.

Just look at the iShares FTSE 100 ETF, for example. This is an exchange-traded fund that tracks the benchmark index, and we can see that the aggregate payment from Britain's top 100 companies has yet to regain its pre-recession peak:

 

2007

2008

2009

2010

2011

Dividend per Share (pence)

19.1

20.2

17.1

16.2

18.1

But some companies within London's premier index have performed well on dividends, despite these austere times, and this series aims to seek them out. One such name is Centrica (LSE: CNA.L  ) .

The big question is whether the company's dividend can continue to outperform the index. Let's take a closer look.

Centrica is one of the country's leading gas and electricity suppliers. With the shares at 326 pence, the market cap is 17 billion pounds. This table summarizes the firm's recent financial record:

Year

2007

2008

2009

2010

2011

Revenue (millions of pounds)

16,272

20,872

21,963

22,423

22,824

Net Cash From Operations (millions of pounds)

2,357

297

2,647

2,428

2,337

Adjusted EPS (pence)

27.15

21.7

21.7

25.2

25.8

Dividend per Share (pence)

11.57

12.63

12.8

14.3

15.4

So the dividend has increased by 33% during the last five years -- equivalent to a 7.4% compound annual growth rate.

Centrica demerged from British Gas in 1997 and has since grown the geographical spread and scope of its operations. It now supplies its U.K. customers with gas and electricity under the British Gas brand, along with drain-cleaning, security, and lock-fitting services under the Dyno brand. The firm also supplies energy to the North American market under the Direct Energy name.

As well as the downstream operations, an upstream business contributes about half of the group's U.K. profit. The company's power-generation assets and gas and oil production involve operations such as nuclear power, wind farms, gas-fired electricity generation, and oil and gas exploration.

Last year, around 87% of operating profit came from the company's U.K. business, and the remaining 13% from North America. However, being a utility provider isn't the money tree it once was: Rising wholesale-energy prices and exceptionally warm weather (causing lower demand for gas) made turning a profit hard to achieve during 2011. Indeed, Centrica's directors said the company's downstream U.K. energy business became loss-making at one point. Fortunately, such travails didn't stop the dividend from rising.

Centrica's dividend growth score
I analyze four different features of a company to judge whether its dividend can continue to rise:

  1. Dividend cover: Adjusted earnings covered the last dividend around 1.7 times. Score: 3/5
  2. Net cash or debt: Net gearing is around 80% with borrowings about 2.3 times earnings. Score: 3/5
  3. Cash flow: Cash flow supports earnings but has been trending down. Score: 4/5
  4. Outlook and recent trading: Good recent trading and a cautiously positive outlook. Score: 4/5

Overall, I score the Centrica 14 out of 20, which encourages me to believe the firm's dividend can continue to outpace dividends from the FTSE 100.

Foolish summary
Centrica's recent trading and positive outlook are encouraging, while the group enjoys strong cash flow and is investing for growth, too. That all bodes well for the prospects of the dividend. Right now, the forecast full-year dividend is 17.2 pence per share, which supports a possible income of 5.3%. That looks attractive to me.

Centrica is one of several dividend outperformers on the London stock exchange. And there's one man who's as keen as I am to find them. I suggest you read all about his best investment ideas now in this free, time-limited report -- "8 Income Plays Held By Britain's Super Investor"-- while you still have the chance. The free report analyzes the 20 billion pound portfolio of legendary high-yield expert Neil Woodford. Click here now to discover his favorite dividend opportunities with good growth potential.

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Further investment opportunities:

Kevin does not own any shares mentioned in this article. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.


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