The outgoing BP chief executive, Bob Dudley, about to retire after nearly a decade in charge of the oil giant, has delivered a “parting gift” to shareholders by unexpectedly increasing the company’s dividend, says Jillian Ambrose in The Guardian.
The decline in the oil price has reduced BP’s profits to $2.6bn in the fourth quarter of 2019 from $3.5bn in the same period of 2018. But the energy giant still did better than most people had been expecting. As a result, BP’s shares immediately surged by 3.5% on the news.
BP’s latest results may be “better than expected”, but the dividend increase is still surprising, says Emily Gosden in The Times. In October Brian Gilvary, BP’s chief financial officer, had said that a hike was “unlikely” before the new CEO took charge given the need to focus on debt reduction.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
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
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
However, Gilvary now believes that a dividend increase can be justified given “strong operational momentum” and “growing free cash flow”. There has also been substantial progress on asset sales and debt reduction, with Gilvary announcing that BP plans to sell a further $5bn of assets by mid-2021.
Standing out from the competition
Increasing BP’s dividend makes sense given that high yields “are the only thing attracting many investors to the industry in a world increasingly aware of the impact of fossil fuels on climate change and falling energy prices”, says Laura Hurst on Bloomberg.
It also helps distinguish BP from its peers, who have experienced a “bleak earnings season” so far. However, pressure from fund managers means that no matter how well BP is doing financially, one of its key tasks now “will be to convince investors and the wider public that BP is doing enough to tackle climate change”.
If prices were $70 a barrel there would be plenty of financial leeway for new CEO Bernard Looney to satisfy activists by setting a “meaningful target” to reduce emissions and invest more in renewable energy, says George Hay on Breakingviews. As it is, he’ll have a hard enough task keeping shareholders on board, since the current price of $55 a barrel is not far off the $50 a barrel level needed by BP to cover its capital expenditure and dividends. Overall, while the dividend hike may be enough to secure Dudley’s legacy, it more than “slightly” cramps Looney’s style.
Further falls in the price of oil are certainly not out of the question, says Anjli Raval in the Financial Times. BP has admitted that if the deadly coronavirus outbreak continues to spread it could end up “cutting global oil demand growth by 40% this year”.
Perhaps the only way to halt the current bear market in oil is for Opec , the exporters’ cartel, to agree “emergency production” cuts with Russia that are drastic enough to bring prices back above $65 a barrel.
-
Protests erupt in Turkey after the arrest of Erdogan's rivalTurkey's president has jailed his main political opponent, Ekrem Imamoglu
-
Why is Mar-a-Lago Accord getting attention from Wall Street?On Wall Street, there is talk that Trump's tariffs aim to make the world’s leaders come crawling to Mar-a-Lago, his Florida residence
-
China’s post-covid investment boom off to a slow start. Should you still invest in China?Advice Investors are no longer bullish on the China shop but the gloomy consensus on Beijing’s economy might be unfair. Should you invest in China?
-
Stock market crash? This time it’s (slightly) differentOpinion The bears expecting a stock market crash have got it wrong, says Max King.
-
3 UK shares to buy yielding up to 17%Tips 3 UK shares top stocks to buy now, according to Alex Harvey of Momentum Global Investment Management.
-
Shining a light on IndiaAdvertisement Feature Despite some short-term challenges, India remains very attractive for investors. Here’s why.
-
Crash? What crash?Sponsored October is often said to be a month of stockmarket crashes. But that's not true for this year, says Max King. A host of positive triggers are lining up for equities, says Max King.
-
What next for stocks as bonds crash?Analysis Despite the slump in prices, UK government bonds remain too expensive. Stocks are much better value, says Max King.
-
What higher interest rates could mean for stocksAnalysis With interest rates rising rapidly around the world, the outlook for equities is becoming more and more uncertain – but what will higher interest rates mean for your stocks?
-
Markets may have bounced, but this is not the end of the bear marketAnalysis Stocks are back on the rise, commodities and precious metals prices are up – even the pound has rebounded. But none of this is typical of bull markets, says Dominic Frisby. The bear market isn’t over yet. Here’s why.
