What BP’s div­i­dend cut and a shift to re­new­ables means for in­vestors

Oil gi­ant trims share­holder pay­out by half, but its plans for a greener fu­ture still ap­peal, finds Sam Ben­stead

The Daily Telegraph - Business - - Business -

BP has added its name to the list of in­come gi­ants slash­ing div­i­dends but the de­ci­sion has sent its share price higher and makes the busi­ness a bet­ter in­vest­ment propo­si­tion, ex­perts say.

The oil mega­lith will now pay a div­i­dend of 5.25 cents per share, a 50pc cut, and has said it will “re­set” its share­holder pay­outs to this new, lower level for the fore­see­able fu­ture.

How­ever, its shares still yield a gen­er­ous 6pc, which – on top of am­bi­tious plans to tran­si­tion to a car­bon-neu­tral com­pany – make it worth buy­ing, ac­cord­ing to stock an­a­lysts.

The last time the com­pany cut its div­i­dend was in 2010 af­ter its Gulf of Mex­ico oil spill. How­ever, it tem­porar­ily sus­pended the en­tire pay­out rather than re­set­ting it

De­spite the dis­ap­point­ing news for in­come in­vestors, BP’s share price has risen 7pc given that the cut was in line with ex­pec­ta­tions and its fi­nan­cial re­sults were more pos­i­tive than ex­pected.

In­come in­vestors will still be left reel­ing, how­ever. BP is the sec­ond most-held stock for users of bro­ker In­ter­ac­tive In­vestor, only be­hind bank­ing gi­ant Lloyds.

But they should be buoyed by the news none the less. Mark Nel­son, of wealth man­ager Kil­lik & Co, said BP’s re­sults were pos­i­tive in the face of the ex­tremely chal­leng­ing eco­nomic back­drop.

“Al­though the sec­ond-quar­ter loss was sig­nif­i­cant at $6.7bn (£5bn), it was smaller than ex­pected as oil trad­ing re­sults were ex­tremely strong,” he said.

Ni­cholas Hyett, of Har­g­reaves Lans­down, said it was a fur­ther blow to in­come in­vestors but nec­es­sary to pre­serve cash and fund the shift from fos­sil fu­els to re­new­ables.

“Re­sults come along­side a ma­jor re­think of its busi­ness and a move away from oil. The fo­cus is now on get­ting the most out of its re­main­ing oil­fields while in­vest­ing in a low car­bon fu­ture,” he said.

He­lal Miah, of bro­ker The Share Cen­tre, said BP was worth buy­ing due to its high yield and the pos­i­tive out­look for its re­new­able en­ergy busi­ness. In­ter­ac­tive In­vestor’s Richard Hunter agreed and said BP’s 6pc yield is par­tic­u­larly punchy in the cur­rent low sav­ings rates and low yield en­vi­ron­ment.

“The yield is par­tic­u­larly at­trac­tive to in­come-starved in­vestors when set against the num­ber of FTSE 100 busi­nesses that de­ferred or can­celled div­i­dends,” he said.

Nel­son said any in­crease in share­holder re­turns would now come via share buy­backs when the com­pany has ap­pro­pri­ate cash flows, with BP un­likely to re­in­state its for­mer div­i­dend any time soon.

In light of BP’s cut, Link Group, a data com­pany, fore­cast div­i­dends for Bri­tish stocks will drop by 38pc to around £60.5bn this year, as a best-case sce­nario. It would drop by 42pc in the worst case.

Bri­tish stocks are ex­pected to yield 3.6pc in this best case and 3.3pc in the worst case. The longterm av­er­age is 3.5pc.

The oil sec­tor is now re­spon­si­ble for £2.2bn of div­i­dend cuts since the end of March – with banks the only in­dus­try that has chopped more.

Fi­nan­cial busi­nesses were told by the Bank of Eng­land to halt share­holder pay­outs to en­sure they had enough cash to sup­port lend­ing to com­pa­nies. They could be al­lowed to pay­out again next year.

‘Mar­ket con­sen­sus of BP as a buy showed op­ti­mism in its abil­ity to stay rel­e­vant in a new en­ergy fu­ture’

A green rev­o­lu­tion?

Amid the div­i­dend cut, BP laid out a plan to tran­si­tion to a “car­bon neu­tral” com­pany by 2050 and pledged to in­crease low car­bon in­vest­ments by 1,000pc by 2030.

In­vest­ments are ex­pected to in­clude re­new­able en­ergy, bioen­ergy, hy­dro­gen and car­bon cap­ture, util­i­sa­tion and stor­age.

Nel­son said: “The com­pany, more than any within the oil sec­tor, has used the cri­sis as an op­por­tu­nity to re­set and re­po­si­tion its busi­ness to one which can par­tic­i­pate in, rather than be left be­hind by, the en­ergy tran­si­tion. We con­tinue to rate BP shares as a buy.”

Hunter added that while the road ahead may well be rocky, BP is trans­form­ing parts of the busi­ness.

“The mar­ket con­sen­sus of BP as a buy showed op­ti­mism in its abil­ity to main­tain rel­e­vance in what could be a new en­ergy fu­ture,” he said.

Green­peace has called on BP to halt drilling for new oil as it tran­si­tions to re­new­ables

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