Much has been written about the outlook for Centrica PLC’s (LON:CNA) dividend in recent weeks.
In a trading update last month, the owner of British Gas said it expected to maintain its full-year dividend at 12p, which works out to a yield of just over 8% based on the current share price.
READ: Market ‘wary’ Centrica could cut dividend
That compares with an average dividend yield on the FTSE 100 is around 3.9%. When a company’s yield gets up towards double that figure, the market starts expecting the pay out to be trimmed.
One of those who has doubted Centrica’s ability to maintain its divi is Hargreaves Lansdown equity analyst George Salmon, who recently said investors will be wary of a cut despite the company’s assertions.
“The prospect of an 8%-plus yield will be attractive to some, but the market is wary the pressures on the group could mean a repeat of recent dividend cuts,” he said.
Salmon cited fierce competition and tighter regulation – including a temporary price cap on all standard variable tariffs – which Centrica, along with its peers, is having to deal with.
Cmoodity price rises will also help Centrica
But in a bullish research released today, analyst at JP Morgan have sided with the company, claiming that the dividend looks safe for now.
“Our refreshed base case estimates point to a more stable set of credit metrics and FCF profile. As a result, we have removed a dividend cut from our estimates,” wrote Christopher Laybutt.
The analyst and his team add that the recent rise in commodity prices will also boost the group in coming years, while they feel the impact of the price cap, which they expect to come into force early next year, has already been priced in to the shares.
Laybutt moved to an ‘overweight’ rating on the stock (from ‘neutral’) and hiked his price target to 180p (from 150p).
Centrica shares gained 1.7% to 145.5p in mid-morning trade.