Ever since the Deepwater Horizon oil spill, billions of dollars have been wiped out from the market cap of BP. The stock price is down about 44% year-to-date. Currently BP has a dividend yield of 11.51%.
From the Journal’s story titled BP Should Resist Slashing Dividend:
Following Tuesday’s letter signed by 31 members of Congress calling for BP to suspend dividends, the company’s stock, yielding 11%, now appears priced for a deep cut. Yet there are good reasons why BP should resist these demands, at least for now. The consensus estimate for BP’s operating cash flow this year is $34 billion. Capital expenditure and acquisitions swallow $28 billion and dividends another $10.5 billion, leaving a deficit of $4.5 billion. Even then, year-end net debt would be about $31 billion, equating to 22% of total capitalization.
BP’s target “gearing” ratio is up to 30%, implying extra debt capacity of about $17 billion. That is about the same as the top end of the first year’s pretax cleanup costs estimated in the Credit Suisse report cited in the congressional letter. So BP can likely handle the costs without touching dividends.
Despite the low stock price and high yield, many investors are likely to stay away from BP until the picture gets clearer.There are too many known unknowns such as legal costs, liability limit issues, claim costs, dividend cuts, political pressures, etc.
Many other foreign oil companies have been beaten down in recent weeks due to the BP disaster. This presents some good opportunities to pick up high quality stocks in this sector.
The following seven foreign oil stocks have dividend yields of more than 4% as of June 10, 2010:
1. YPF SA (NYSE:YPF)
Current Dividend Yield: 7.48%
2. Ecopetrol SA (NYSE:EC)
Current Dividend Yield: 4.57%
3. Petrobras Energia SA (NYSE:PZE)
Current Dividend Yield: 4.93%
4. Statoil ASA (STO)
Current Dividend Yield: 4.59%
5. Repsol YPF SA (REP)
Current Dividend Yield: 6.36%
6. ENI SpA (NYSE:E)
Current Dividend Yield: 6.85%
7. Total SA (NYSE:TOT)
Current Dividend Yield: 6.88%