Notwithstanding a 1.6% improvement in Brent crude to US$20.33 per barrel, the relief in BP’s price suggests, perhaps, that there were material concerns for the oiler’s dividend in some quarters.
BP shares were up 3.8p or 1% to 317.45p, after beginning the session with a 2% decline.
Despite reporting a record US$4bn quarterly loss – even if its own preferred metrics, based in replacement costs, soften the blow – the oil supermajor evidently rejected some calls in the City to either cut or suspend its shareholder payments.
Instead, the dividend was maintained at 10.5 cents per share, in line with the preceding quarter.
“The decision to hold on to the dividend at BP has also proven to be a positive surprise, the firm likely judging that the hit to its cash pile is outweighed by the headline risks to confidence that could follow should one of the UK’s big dividend firms have to cut back its payout,” said Chris Beauchamp, analyst at IG Markets.
It is particularly significant for income-focused investors, not least blue-chip pension funds, given that in 2019 the US$6.5bn paid by BP represented some 8.6% of the FTSE 100’s dividend returns.
Given that some US$30bn of the City’s dividends have so far been scrapped, the implied 10% yield offered by BP’s shares no doubt appears particularly attractive.
Just how high and how rare that dividend presently appears perhaps tells its own story, reflecting obvious risks.
This morning’s results showed that BP’s debt pile had ballooned by US$6bn during the quarter to US$51.4bn and it had US$32bn of remaining liquidity - it recently added US$10bn to its credit facility and issued US$7bn of new bonds.
Asset divestment is said to be ongoing, towards the targeted US$15bn, though cash proceeds are being ‘phased’ or delayed into the future.
It may potentially reassure investors that BP is perhaps hardened by the challenges of its recent past.major slump in prices for its products.
Russ Mould, investment director at AJ Bell, noted: the oil major’s cost reductions, cuts to capital investment, asset sales and higher borrowing harks back to 2015-16 when it last had to confront a major slump in prices for its products.
“That combination saw the company – and its dividend – through that bleak spell and new boss Bernard Looney is hoping that it will do the trick again this time.”
BP’s capacity and willingness to pay future dividends will no doubt remain subject to debate.
In the current market that could just as easily be said for almost any blue-chip equity, never mind one contending with an 80% drop in prices, oversupply and wafer-thin demand.