Will BP cut its dividend?

The renewed wobble in crude was accompanied by a 10% slide in BP’s shares, putting the dividend under pressure.

16-2-4-BP-634
BP has suffered its worst-ever annual loss

According to an old equity-market adage, January sets the tone for the year. After the worst January in years, the beginning of February was nothing to write home about, with stocks slipping again mid-week as oil headed back to 12-year lows. The renewed wobble in crude was accompanied by a 10% slide in BP's shares as it announced its full-year figures for 2015.

BP suffered its worst-ever annual loss of $5.2bn. The dividend yield jumped to over 8%. It announced 3,000 job cuts, on top of 4,000 already made, while CEO Robert Dudley predicted oil prices would recover this year: "It's lower for longer, not lower forever."

What the commentators said

Each $10 drop in the oil price costs around $2.1bn of operating cash flow a year. "It is hard to cut fast enough or deep enough to keep up." Despite the huge losses and higher debts, Dudley plans to keep the dividend at last year's level, said Jim Armitage in the Evening Standard.

Perhaps he picked up the Russians' love of gambling while he was there running BP's joint venture with TNK. But his dividend plan is essentially a bet on the oil price recovering soon "the kind of wager even the most feckless count in Tolstoy would balk at".

Actually, he can probably keep up the payout for another year, even if oil stays where it is, reckoned Alistair Osborne in The Times. Capital expenditure is being slashed from $23bn in 2014 to $17bn this year. By the end of next year $7bn of costs will have gone. And while debt has gone up, it's still relatively low.

BP can afford to wait, agreed The Guardian's Nils Pratley. But there's a "deeper worry" than the dividend. Could all this retrenchment damage BP's ability to exploit the next upturn in oil prices?

Recommended

What escalating tension between Iran and the US means for oil prices
Global Economy

What escalating tension between Iran and the US means for oil prices

The tension between the US and Iran is unlikely to mean all-out war in the Middle East. But markets may be getting a little too complacent about its e…
6 Jan 2020
Rising output will keep a lid on the oil price
Oil

Rising output will keep a lid on the oil price

Oil exporters’ cartel Opec gave further encouragement to the bulls this month after agreeing to new production curbs.
20 Dec 2019
Brace yourself for pricier oil
Oil

Brace yourself for pricier oil

Global growth, and hence demand for oil, could surprise on the upside next year, leading to a bounce in the oil price.
29 Nov 2019
The British equity market is shrinking
Stockmarkets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019

Most Popular

The electric-car bubble could get an awful lot bigger from here
Renewables

The electric-car bubble could get an awful lot bigger from here

The switch to electric cars is driving a huge investment bubble. But that’s not necessarily a bad thing, says John Stepek. Fortunes will be made and l…
24 Sep 2020
Can Rishi Sunak’s winter plan save the UK economy?
UK Economy

Can Rishi Sunak’s winter plan save the UK economy?

With his Winter Economic Plan, chancellor Rishi Sunak is hoping to support the economy through the dark months ahead as restrictions tighten again. Jo…
25 Sep 2020
The rising dollar is proving bad news for most other assets – will it last?
Investment strategy

The rising dollar is proving bad news for most other assets – will it last?

Precious metals, stocks and pretty much every other asset has taken a tumble as the US dollar strengthens. Dominic Frisby looks at how long this trend…
23 Sep 2020