BP halves its dividend

BP has announced a record quarterly loss for the three months to the end of June – $17.7bn – and cut its dividend in half, says Graham Ruddick in the Times. BP’s shareholders also have a new strategy to get used to.

This “radical” plan involves transforming BP from an “international oil company” into an “integrated energy company” by boosting investment in low-carbon energy tenfold by 2030.

This is not just a dividend cut, but also a “fundamental change” away from the old “progressive dividend” mantra whereby the payouts “rise no matter what”, says Jim Armitage in the Evening Standard. Instead, cash is returned to shareholders “only when it’s been generated from the business”. This is a “jolly good thing”.

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After all, while paying dividends with debt might be “acceptable” if good times are in sight, when they’re not it’s just “bad, risky business”, especially since global demand for oil has been “battered” by Covid-19’s impact on the economy and the shift to renewables.

The market seems to have regarded the cuts as “almost inevitable”, says Ed Cropley for Breakingviews: the implied yield on the shares had risen to 8% before the cut. The move will also free up cash that can be used to reduce BP’s debt to its target of $35bn. So it’s not surprising that the market has reacted positively, with BP’s shares jumping by 7%. Still, changing BP into a “successful green energy company” will be a “lot harder” than many seem to believe, especially as BP is “late to the game” in terms of investing in renewable energy.