BP - Who Loves Ya, Baby?

BP: In general, I have used official Regulatory News Service announcements as the trigger/source for my comments. This comment is slightly different and is really just chucking a few thoughts around on BP’s dividend. The market capitalisation is about £85bn and the dividend cost is of the order of £4.25bn (the 5% yield). They account in dollars and last year the dividend was 37c per share, covered easily by earnings that have, in recent years, been between 58c and 135c. However, BP is facing severe challenges on two fronts, in USA and Russia. Historically, that is a tough ask however big your army is. In the US, the Deepwater Horizon oil spill has left them as public whipping boy (and local business charity) number one. The compensation process has seemed to them deeply unfair, with BP citing over generous (and even spurious) awards aplenty. Now, they are facing a maximum fine of $18bn, having been found guilty of ‘gross negligence’. The pain just goes on and the legal battle has years left in it, but this is clearly a big number, even for BP, to stump up. Looking to the east their near 20% stake in Rosneft is worth some $13.5bn. But Rosneft is Russian, 69.5% government owned and western economic sanctions (especially on access to capital debt markets) are biting. Igor Sechin, their CEO, has asked the government for $40bn in funding. If this was fashioned through a rights issue (it is Vlad’s house, so Vlad’s rules), BP’s share would/should cost $8bn. Even worse, the possibility that any further deterioration in West/East relationship might ever lead to Russia confiscating western owned assets (Vlad’s rules again), must make the BP board’s blood run cold. For now, BP have announced a second quarter dividend of 9.75c, up from 9.5c the previous quarter and making 39c for the year possible. So it is business as usual on the dividend declaration front. The niggling worry though, is whether cash drains in the US and maybe Russia would make the board feel that current dividend expectations are too generous and that a pause (or worse) might be prudent. The company’s dividend policy (in part) states: ‘The company intends to grow the dividend level over time, in line with the improving circumstances of the company. BP directors decide the level of each dividend based on each quarter’s results.’ So the quarterly declaration is not a ‘gimme’ and can you really say that their circumstances are improving at the moment? The next quarterly results (and dividend declaration) are due on 28^th October. (9th September 2014)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk