What's going on?

Things have gone from bad to worse for Centrica, owner of British Gas (the UK�s biggest energy supplier) � its shares plummeted almost 20% to a 14-year low on Thursday after it said it would make far less profit this year than investors were expecting.

What does this mean?

Centrica was already having a rough year, partly because the British government proposed capping the price energy providers can charge customers. But Thursday�s update ratcheted up the negativity even further. Almost a million customer accounts were closed in recent months (about 6% of Centrica�s total) (tweet this) which, in the words of one research analyst, is an �alarming� rate (smaller rivals have been offering cheaper deals). Centrica also said that its US business would make far less profit this year than expected.

Why should I care?

For markets: Centrica�s shareholders may be in the midst of a �dividend trap�.

Centrica took pains to emphasize that it still intends to pay its upcoming dividend. The cash payment is equivalent to almost 9% of its current stock price (4% is typical of other big companies). Usually such a high dividend (relative to the price of the stock) would be attractive to investors � but given Centrica�s stock price drop on Thursday, it�s clear that many don�t think Centrica will be able to keep returning the same amount of cash to investors for long.


The bigger picture: Debt is limiting Centrica�s room for maneuver.

Centrica is undergoing a planned overhaul of its operations, focusing more on selling power to businesses and households rather than exploring for new sources of energy. One of its constraints is that Centrica has quite a bit of debt, which means it doesn�t have much margin for error. A sharp decline in customer accounts � the very area where it�s supposed to be increasing its efforts � is a slip-up, and the big dip in the stock price likely reflects nervousness that Centrica can�t afford too many such hiccups.