Centrica PLC (LON:CNA) (LSE:CNA.L) has released 2016 results which include an update on its dividend. Its adjusted operating profit and adjusted earnings both increased 4%, with adjusted EPS of 16.8p. Adjusted operating cash flow rose 19% to £2686 million, which included £357 million working capital inflow in the UK business.
These figures allowed Centrica to declare a full year dividend of 12p per share. It is targeting the restoration of a progressive dividend, but in the prevailing environment it does not expect to achieve this until the end of the year. Once net debt is in the range of £2.5-£3 billion, Centrica’s dividend should return to being progressive.
The company’s efficiency programme continues to gather pace. It registered £384 million of cost savings and over 3400 LFL reduction in direct headcount in 2016. Both of these figures are ahead of target, with a further £250 million of efficiencies expected in 2017. I believe a reduction in costs will aid Centrica’s dividend and make it a better dividend stock in the long run.
Its shift in investment towards customer-facing activities from E&P and Central Power Generation has continued. I think this could provide it with a more solid dividend outlook in the long run. Therefore, I believe Centrica will gradually become a more appealing dividend stock.
It has a dividend yield of 5.5%. That’s roughly in line with other popular dividend stocks such as Vodafone Group plc (LON:VOD) (LSE:VOD.L), National Grid plc (LON:NG) (LSE:NG.L), BP plc (LON:BP) (LSE:BP.L) and Imperial Brands PLC (LON:IMB) (LSE:IMB.L). National Grid has a dividend yield of 4.5%, Vodafone’s dividend yield is 5.7%, Imperial Brands has a dividend yield of 4.1% and BP’s dividend yield is 7.2%.
In my view, Centrica could become a strong dividend investment in the long run. I think its cost reduction and shift in investment towards customer-facing activities could improve dividend growth. However, I think the higher yields of BP and Vodafone, and the greater consistency offered by National Grid and Imperial Brands, mark them out as better dividend stocks.