Stock Purchase: Centrica

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On Friday 6th March 2015, I purchased 445 shares in Energy company Centrica. The share price at the time of purchase was 244.87p per share. The total cost including charges and commission was £1,100.12I made this investment in my taxable account.

I initially purchased shares in Centrica on 13th March 2014. The share price back then was 328.73p per share. My investment went down over 25% (in my NISA) on the purchase from last year, largely on the back of their 30% dividend cut. 

I wasn’t delighted with the 30% dividend, nor would I like most of my portfolio to follow. However, I don’t see it as all doom and gloom for the owners of British Gas either. They’re a massive company, in a defensive sector. When you consider their proposed dividend, they’re still showing a strong yield (over 4.5%). They’re also demonstrating growth in their earnings per share and profit when you look back over the last 10 years. The share price at the time of purchase this year was the lowest it’s been since November 2009. It reached it’s peak of 402.20p in September 2013 (18 months ago). I believe there is plenty of room and time for this investment to grow, and with it, dividends and capital gains. 

I felt last year that Centrica was a solid investment, and although it hasn’t turned out to be the case in the last 12 months, there’s still a long way to go. I want to invest in companies for at least 5 years, and I’ll no doubt be owning stocks in 30-40 years time. I have confidence Centrica will become a solid investment over the long term.


What are your thoughts on buying Centrica? Have you been re-investing into low performing sectors like energy and oil? Or do you think I’ve gone in too soon?


0 Comments

  • M

    Reply Reply 26th March 2015

    I'm not an owner of any has companies, but I did want to top up my RDSB as well as national grid… Not done either as you know from last night's post!

    I think you made a good decision, it's a defensive, necessary, boring business. The current low price is a good entry. You might see some price volatility over the next 6 weeks due to the upcoming elections, but after that (unless we get a labour government) then i would expect it should start to increase in price again

  • Anonymous

    Reply Reply 26th March 2015

    Huw

    I agree with your comments regarding Centrica and am also a holder of them. My allocation for March has been placed else where, however, Centrica are on my watchlist for April. The only fly in the ointment that I can see is the promise by Labour that they will drop energy prices by 10% if they are elected. With this in mind they might stay on my watchlist until after May 7th.

    Good luck

    Richard

  • weenie

    Reply Reply 26th March 2015

    Hi Huw
    I bought Centrica last month…just before the price tumbled! But I'm not too concerned as like you, I believe they will be a solid investment and will recover long term.

  • Dividend Drive

    Reply Reply 26th March 2015

    It is a nice company and at an attractive price. I do think the sell off has been rather harsh. The cut has really consolidated their financial firepower. It seems a good move to me though I suspect there will still be some downward pressure to come!

    I have held off investing in them for the same reason I have not topped up my holding in SSE. It is not (weirdly) because the threat posed by a Labour cap. I suspect they are already carefully hedging for that possibility . My biggest concern is that they–like SSE–are consistently losing large numbers of customers with each update. That is worrying! What are your thoughts on that?

    I am still waiting to see SSE and Centrica at least slow and hopefully reverse that decline. Hopefully it will happen soon. That is why I opened a position in National Grid. It is by far the most reliable of the lot. Of course, utilities are a super reliable sector and Centrica a very, very big gun. So I am still very tempted by Centrica at the current prices!

    Like M I have been more tempted to top up on National Grid and Royal Dutch Shell. The energy and oil sector does, still, look very appealing!

    Nice purchase. Let's hope the share price goes 25% up this time!

  • Huw Davies

    Reply Reply 27th March 2015

    Hi Richard,

    I took a bit of a punt on extending my position in Centrica now. Overall my decision was based on the value of the company at the time I purchased them. I felt that under 250p per share they represented good value. They could drop further, but moving forward I was happy enough with 244p so I took it.

    You points are perfectly valid though Richard, and we'll just have to see what this year brings for the company. I wouldn't be shocked if the share price goes below my purchase price. I'm confident that in the long term I'll get my money back and more with them.

    Thanks for the well wishes, and I wish you the best in your upcoming decision making!

    Cheers
    Huw

  • Huw Davies

    Reply Reply 27th March 2015

    Thanks M!

    It's funny how similarly we all think alike really. I recently increased my holding in RDSB, and National Grid are hovering around the top 5 on my watchlist. Interestingly enough, today Centrica are lower down on my watchlist than both companies you've mentioned, which would suggest to me that they're currently better valued.

    You gotta love the boring, defensive, necessary companies haven't you! I agree with your thoughts entirely! Perhaps a bit of turbulence overhead, but I'm confident of a smooth landing. (Do I have a parachute?)

    Cheers
    Huw

  • Huw Davies

    Reply Reply 27th March 2015

    Ouch. Sorry to hear that Weenie!

    I had faith in them last year by buying shares at 328p per share, and I still have faith now. I think we'll both fine in years to come!

    Cheers
    Huw

  • Huw Davies

    Reply Reply 27th March 2015

    Hi DD,

    Thanks for sharing your thoughts!

    I think of Centrica much like Tesco. They are a massive company. Huge even! there's a good chance they'll lose market share from up and coming companies, but they'll always be there. They might not be as dominant as they were, but they'll always be there.

    As for SSE, I invested in them last year, mainly because they're a dividend paying beast! That currently hasn't changed. Their current share price and P/E is unattractive to me right now, but I was checking them out a few weeks ago when they were closer to their 52 week low.

    I think you're 100% right for NG being more stable than CNA and SSE and alike. As I mentioned above, I knew with this one that I was taking a bit of a punt as the price could decline, but overall the numbers stacked up for me. Centrica are a 'Big Gun' in the sector and one I'm confident of receiving a solid ROI over time with.

    Thanks for stopping by and sharing your thoughts!

    Huw

  • Dividend Drive

    Reply Reply 28th March 2015

    I think you're right there. There is a strong scent of Tesco about them. They can afford to lose market share in the short term but have more scope to play with due to their dominance. I'd like to see the new CEO present a clear plan on how it can be slowed though!

    Overall, though, I agree Centrica is an excellent company well worth investing in. I wrote a little bit about this back in February when they cut their dividend (If you're interested, it is here http://bit.ly/1EfRumH).

    SSE certainly are a dividend paying beast! I was lucky to jump in when they were at an incredibly low ebb back in Jan 2014. A lucky purchase!

    I will be heftily tempted if either Centrica, SSE or NG's price drops even further over the next month or so (election-related I suspect). Also, this gives the new Centrica CEO a little more time (and an AGM) to make an impression! I have warmed to them since the dividend cut (as I noted in my article) but I am willing to be patient for now!

    I notice you, like me, have no water utilities. Is there a particular reason for this? They interest me, but something about them pushes me away from investing! Peculiar!

  • Huw Davies

    Reply Reply 29th March 2015

    Thanks for sharing the link to your article, it was an interesting assessment, and I enjoyed the read.

    I'm more interested in NG than SSE right now, but the market's a funny old place and things can change very quickly.

    No, I don't own water utilities currently. They interest me too due to their defensive nature and strong dividend. All of the larger companies are at least 'slightly overpriced' or 'overpriced', their dividend cover is lower than my benchmark of 1.5 and their debt ratios are huge. In some cases 20 times the amount of borrowings to current earning power. They've made some nice profits for investors over the last 5 years, but I think there are better and more stable opportunities available right now.

    Cheers
    Huw

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