BT shares crash 10%, but dividend is back at Centrica

Both these famous FTSE 100 names could claim some recent success in terms of share price performance, but BT’s hard work has come undone in spectacular fashion.  

Dividends are back for British Gas shareholders, with the 1p a share due for payment on 17 November set to be the first award by parent company Centrica (LSE:CNA) in three years.

It’s still a long way from the 3.6p a share half-year payment enjoyed by shareholders as recently as 2018, but today’s move at least represents a step in the right direction after a period of pandemic disruption and restructuring under chief executive Chris O’Shea.

A stronger balance sheet means the company is confident enough to reinstate a progressive dividend policy, which aims to pay roughly a third of the total payment at the half-year stage.

• Discover more: Trading Account | Share prices today | Top UK shares

On 2 April 2020, the company cancelled its 2019 final dividend payment of 3.5p share due to be paid in June so it could save £204 million. It wasn’t alone as other widely-held stocks including BT (LSE:BT.A) and Lloyds Banking Group (LSE:LLOY) also axed payments due to Covid uncertainty.

Centrica shares hit a record low of 34p at about that time, having been above 90p earlier in 2020. Their recent return to that pre-pandemic level reflects the assistance of much higher commodity prices behind its energy trading and nuclear generation operations.

Earnings of 10.2p a share for the first half of 2022 beat expectations by 26% and represented a sixfold increase on the previous year, driven by the company’s trading arm, business-to-business energy and stake in UK nuclear power stations.

• 12 stock ideas for brave bargain hunters
• Two big dividends for adventurous income seekers
• Lloyds Bank shares soar on impressive results and dividend boost

Downstream operations were weaker, with British Gas Energy posting a 43% fall in operating profits to £98 million as the rise in wholesale commodity prices meant the company’s default tariffs were cheaper than nearly all new fixed-price tariffs.

British Gas Services and Solutions also slumped 88% to £7 million, which the company blamed on the weaker economic backdrop and investment in service and pricing.

Analysts at UBS said these performances were more than outweighed by several positives, including the dividend, upgraded full-year guidance and overall strategy progress.

However, they said it was too early for shareholders to expect Centrica to follow the trend of buyback programmes deployed by other FTSE 100 companies.

UBS said: “The possibility of returning surplus cash to shareholders is interesting although we assume Centrica would prefer to keep capital buffers on the balance sheet or to redeploy capital against the long list of opportunities in security of supply.”

UBS has a price target of 97p, while counterparts at Morgan Stanley are more optimistic at 140p. Shares fell 2.2p to 88.76p, even though Centrica indicated that adjusted earnings will match or even beat City forecasts if forward commodity prices stay where they are.

Something for the bulls and the bears

Another widely held stock under pressure today was BT Group, which continued its recent choppy trading by dropping 14.05p to 162.05p in the wake of a first-quarter trading update.

The results were in line with City expectations, but this masked a deteriorating performance in the Enterprise division after revenues fell 6.8% and earnings by 26.6%. This was offset by a strong performance in Consumer, as price rises in broadband helped revenues up 5%.

BT made no change to its full-year outlook, with analysts looking for revenue growth of around 0.7%, adjusted earnings of at least £7.9 billion and capital expenditure of £4.8 billion.

Morgan Stanley, which has a price target of 250p, said there was “something for the bulls and the bears” in today’s update.

• 12 stocks for dividend investors hunting for high yields
• Dividend yield: three tips to help build your investment wealth

The company, which has 671,000 individual shareholders, has already resumed dividend payments after awarding 5.39p a share worth £528 million for the year to 31 March.

Chief executive Philip Jansen said the company had made a good start to the new financial year, including an acceleration in the roll-out of the Openreach full fibre network to over eight million homes and businesses in the UK.

He said: “We’re accelerating our network investments and performing well operationally. Despite ongoing challenges in our enterprise businesses, we returned to revenue and earnings growth in the quarter.”

BT added that contingency plans are in place to minimise disruption and keep customers connected during strike action by CWU members on Friday and Monday.