BP halves its dividend

(Image credit: BP engineers ©)

published 6 August 2020

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”.

MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

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.

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri