Centrica's dividend up after gas bills rocket

Just 24 hours after British Gas hit customers with record-breaking price rises of up to 35%, parent company Centrica today announced a 16% hike in shareholder dividends taking its payout to the City and other investors to £500 million this year.

Yesterday British Gas shocked the nation with the energy hikes which takes average bills through the £110 a month level, more than £1300 a year.

The company said it had to raise prices because half-year profits in its business had slumped 69% to £166 million as wholesale prices have overtaken the price at which it supplies energy to 11 million homes.

However parent group Centrica today reported group half-year operating profits of £992 million on the back of a fivefold leap in profits to £638 million at Centrica Energy, its gas production arm operating out of Morecambe Bay and in the North Sea.

As a result, the group said it is increasing the interim dividend to 3.9p from 3.35p, a shareholder distribution in the coming months worth £145 million. The payout follows the final dividend just paid for last year which cranked up 20% to 9.65p and was worth £355 million to shareholders.

Centrica's chief executive Sam Laidlaw-defended the shareholder payouts.

"The dividend is purely mechanical," he said. "Under our dividend policy it is automatically paid as 30% of our earnings. If we suddenly changed our policy that would make our shareholders nervous."

Laidlaw further argued that the dividend pay out comes after a huge tax bill - totalling £577 million - with Centrica paying tax rates of up to 75% on certain fields in the Irish Sea making it the second highest taxpayer among leading British companies with an effective tax rate across the group of 58%.

The chief executive said prices needed to go up at British Gas to pay for large-scale investment in the coming years.

This year it is also investing £1.6 billion in building a new gas-fired power station near Plymouth as well as a large windfarm off the coat of Devon, and is investing in new gas assets in the southern North Sea and off the coast of Norway.

He refused however to be drawn on how much Centrica is prepared to invest in nuclear energy.

The group is thought likely to be a junior partner in the £12 billion takeover by French giant EDF of British Energy, which operates the UK's eight main nuclear power stations.