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BP Will Follow Royal Dutch Shell In Cutting Its Dividend

Jun. 08, 2020 1:51 PM ETBP p.l.c. (BP)70 Comments
Aristofanis Papadatos profile picture
Aristofanis Papadatos


  • BP is one of the most shareholder-friendly companies in the investing universe.
  • The company defended its dividend in previous downturns.
  • However, BP is likely to cut its dividend in the ongoing downturn.

The global recession that has resulted from the coronavirus has triggered numerous dividend cuts, particularly in the vulnerable energy sector. Even Royal Dutch Shell (RDS.A) (RDS.B), which had not cut its dividend since World War II, threw the towel and slashed its dividend by 66% in this quarter. As the vast majority of the shareholders of BP (NYSE:BP) are holding the stock for its generous 9.7% dividend, it is only natural that they have become worried about a potential dividend cut. In this article, I will discuss why BP is likely to cut its dividend this year.

Business overview

The spread of coronavirus has caused a severe global recession. To provide a perspective, the global economy is expected to contract 3% this year whereas it contracted just 0.1% in 2009, in the worst financial crisis of the last 80 years. The global demand for oil products has plunged due to the lockdown in many countries and the collapse in air traffic. Consequently, the price of oil slumped to a 20-year low in the second quarter, though it has retrieved part of its losses lately. Moreover, the refining marker margin of BP slumped to a 10-year low in March.

All these factors have created a perfect storm for BP. The oil major will suffer not only from the depressed oil and gas prices and refining margins, but also from its reduced production. Due to the production cuts that OPEC and Russia have agreed, the oil majors will be forced to cut their production in many countries. In addition, some growth projects of BP have been delayed due to the pandemic.

The results of BP were daunting even before the peak of the pandemic. In the first quarter, its earnings slumped 67% over last year due to the suppressed oil prices caused

This article was written by

Aristofanis Papadatos profile picture
I am a chemical engineer with a MS in Food Technology and Economics. I am also the author of 2 mathematics books ("Arithmetic calculations without a calculator" and "Word Problems") and perform almost all the calculations in my mind, without a calculator, making it easier to make immediate investing decisions among many alternatives. I invest applying fundamental and technical analysis and mainly use options as a tool for both investing and trading. I have nearly achieved my goal of early retirement, at the age of 45. In my spare time, I follow Warren Buffett's principle: "Some men read playboy. I read financial statements".

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (70)

One sure way to maximise the divi for the future was to load up with the heavily discounted share price around the 23rd march when BP shares fell to 225p in the UK, i loaded up with them at 235p and hence even if they reduce the divi or halt it for a short period my divi yield will be twice that of when i bought the bulk of my long holding at 473p.

Long BP and RDSB
I would like to be that courageous!
The biggest mistake I made was over exposing to BP stock. Now getting out with the rallies. Don't see much growth in energy sector. When I see now, T appears much better for income.
I have just read that BP intends to cut its workforce by 10000 almost all office workers.
Moreover, BP's debt is very high.
At what oil price level could BP continue paying the dividend without selling assets and/or piling up more debt?
Frankly I don't think anyone on this board knows the answer to that question.
spinrbait profile picture
they said a couple of weeks ago 35.00 a barrel
allday1234 profile picture
Well I am sitting on a small position less than 300 shares currently below my cost basis and I will probably make a decision today which looks to be down. Here is where I am at as I have taken a loss on my energy stocks and am teetering on another loss, should I just sell it and take what is left and invest elsewhere. So what do I know? Nothing really but indications although improving may still be short of the goal of not cutting the dividend. If they cut it the stocks already at a loss will drop to probably half price..My inclination will be to sell now or worry about a dividend cut.....Today's market may help me decide.

allday1234 profile picture
Sold it this morning. Settlement is Thursday, exday for cswc is Friday so may use part of the money to pick the dividend of .51, hard not to since it is $15 or $16 a share and an guaranteed .51 cent per share this qtr and next qtr, one just does not get a 13.5 yield guaranteed anywhere, yet that is what they are doing.

I sold some and took the loss. Deployed the proceeds to buy AVGO. Will be selling more in coming weeks too. Dividend is good but that does not help in price drop. With fear of dividend cut, it is unlikely that it will go much higher.
arcticfoxman profile picture
Will BP Follow Royal Dutch Shell In Cutting Its Dividend?
Archstanton1 profile picture
BP is a pig and it looks like they will implement their idiotic plan to be carbon neutral by going out of business which is the only way they successfully implement such a hair brained scheme.
The Seeking Alpha editors should revisit this article and its misleading title.
Misleading headline
Whew, you scared me at first, I thought you said they cut the dividend, but it’s only your opinion they will cut it. I sold RDS/B over their dividend cut and put the money into TOT. If BP or TOT cut their dividend radically, as RDS/B did, then I will sell them also and put the money into reits, which are extremely hot now and pay very nice dividends.
You may keep chasing. If RDS did it, BP & TOT can reasonably expected to. As to REITS, don't pick wrong, as some have cut too.
I hope you are wrong, BP has said they won’t cut the dividend while TOT has said nothing. I’m not willing to sit on oil stocks, with the current global oil issues, unless they are willing to pay me well to do so.
richjoy403 profile picture
I recall the BP's Deepwater Horizon disaster of April 2010. It was the lead daily national news item for weeks, and again as the leaked oil reached and fouled beaches across 4 states, and severely affected their local economies.

High pressure methane gas rose from the well over 18,000 feet below sea level into the platform--then exploded. The explosion immediately claimed 11 lives (bodies never recovered) and injuried others. BP lied about the size of the spill, which was finally estimated at 5,000,000 barrels, as the well continued spewing oil into the GoM for months before being capped (and the cap continues to leak today).

All told, Deepwater Horizon remains one of the largest environmental disasters in American history.

As for the BP dividend...
It was soon obvious ongoing environmental and economic damage was extensive to both sea life, the fishing industry, as well as several hundred thousand businesses affected by the loss of pristine GoM beaches of at least 4 states. In addition, BP was responsible for funding years of cleanup efforts costing many billions of dollars.

In fact, BP resisted calls for it to cease paying dividends until its financial obligation (and ability to pay) was fully assessed. BP suspended its dividend only after the Obama Administration appealed to the UK government. That decision was very unpopular in the UK, as many retirees depended upon BP for a major portion of their income. BP missed 3 suspended dividends, and in 2011 resumed dividends at 50% of the former rate.

BP was found criminally liable in 2015, agreed to pay $18.7 billion in fines, THE LARGEST CORPORATE SETTLEMENT in United States history.

As of 2018, total BP costs, including cleanup costs and a Court Supervised Settlement Program that was set up in the wake of the disaster and included nearly 400,000 cases, was were estimated at OVER $85 BILLION.

BTW, I have no investment in BP, nor an opinion as to the probability of a potential dividend cut.

Did you intend to tell us something that we didn't.know?
I think you need to check your facts,

BP were held jointly liable not solely. The dodgy US contractors running the drilling activities were also to blame

Your also a long way out with the actual cost of the spill to BP but please don't let the truth get in the way of a good story.

Long BP even if the divi is reduced
richjoy403 profile picture
Pharma -- Correct, jointly liable, and mostly liable (I only dealt with BP), and only hit the high points).
SilverSun profile picture
BP is the only major oil I am long anymore. The reason is , I completely disagree with your point of view. I would agree with you in an L scenario.
When an L recovery evidentiates itself, it would be reasonable to cut the dividend.
Otherwise why did they not cut it in Q1?
Things looked more gloomy them than now.
I've owned BP for over 5 years now and the same naysayers have forecast dividend cuts at least 10 times for each of those years.
Sheesh, even a broken clock is right twice a day and with a forecasting record worse that that of a broken clock, you'd think that they would shut up.
You'd be wrong!!
SilverSun profile picture
I don't believe in an L scenario. This is what I'm saying. Div will not be cut with this oil price.
MoneyPig profile picture
Tough call with a new CEO. I get your comment. If BP was ever to cut it had quite a spate of troubles all worthy of cutting and they stayed with it.

But, the CEO sounds all gloomy.
12 over profile picture
The BP gulf accident was NOT the worst in the oil industry. Not even close. whatwhenwhy.net/...
They did NOT suspend the dividend due to public outrage, at that time. It was suspended for financial reasons...not public outrage.
Very misleading title. I’m very surprised it got past the Seeking Alpha editors. I’m even more surprised that this article has received any ‘likes’.
Absolutely nothing new in this ‘opinion’ by the author.
Mongo Lobo profile picture
Public outrage was spearheaded by NY Senator Douchebag Schumer, a well known anti-capitalist.
You may have offended the douchebag by using it as qualifier for slippery Chuck.
Or shall we use crying Chuck has been said by that other guy from NY?
Your link points to a comparison of lives lost in the various accidents. BP's problem is the clean-up, which I believe is the biggest, worst mess of them all. Oil, coal mining, gas - they are all dangerous to work for.
I was tracking reading 900 wpm all the way - until you wrote "BP is still attractive." Ooopps. Too much debt for me to chase at these prices. Agree - MGMT should focus on reducing Debt vs paying these huge dividends. (IMO) I would like this particular BUSINESS to be around 10 years from now too.
iraklionas profile picture
Deceptive header. Sounds like u know this will happen. Please be more judicious how u present in the future.
spinrbait profile picture
I remember back in may, bp said they could maintain their dividend with oil at 35.00 a barrel
Greenhorn Investor profile picture
Not saying it's the case here but I wouldn't hang my hat on a statement like that. It would not be the first time someone has declared a dividend safe only to do a 180. Having said that, the fact that they tie it to a price per barrel makes it a bit more objective but even then...

Long BP.
FYI (from someone on the inside),
BP just announced today that it is planning to strengthen its financial position by reducing office-based headcount (~10000 employees by year end), suspending 2020 pay increases to all upper management, potential elimination of 2021 distributed ACB, and reinventing how it conducts business. So far, when continually asked, BP (Bernard Looney-CEO) has maintained the message that it currently has NO PLANS to cut its dividend.

Best Regards
Thanks for sharing that tidbit of info.
Listened the the Q1 CC and Mr Looney came across as an opinionated sharpie. For me that was a pleasant surprise as it is always uncertain what a new dog is going to do after he's done wetting all four corners of the building.
Irishvalueseeker profile picture
Significant job cuts announced today. No real justification provided here, but entitled to your opinion.
Tuco's Child profile picture
Headline inappropriate.
Nicklaas profile picture
..and the proposed gearing measure is adventurous. It mixes interest bearing liabilities with a due date with accounting fiction that may 'never' come true.
On that metric almost any company is financially stressed or even borderline insolvent..

If BP was a small cap I might be inclined to think somebody is trying to write his way out of short squeeze

Dividend protection was retired along with Dudley.
The Queen will have something to say about that!
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