Maitali Ramkumar

1/15/2020 Will BP Boost Its Dividends in 2020? - Market Realist Will BP Boost Its Dividends in 2020? By Maitali Ramkumar Jan 9, 2020 BP’s (NYSE:BP) dividend payments were stable in 2019, at $0.615 per ADS (American depositary share) in each quarter. But its dividend yield rose in the year, from 5.4% to 6.7%, as its stock price declined. In 2020, BP’s earnings outlook looks positive. With the better earnings forecast, investors are likely expecting a rise in its dividend payment. The rise will depend on various factors, such as the company’s earnings, cash ow, debt, divestments, buybacks, and leadership changes. Let’s review how each factor could a ect dividend growth. BP con dent on cash ow In 2019, BP signaled that something good could happen on the dividend front in the year’s second half. Subsequently, the company canceled its scrip dividend. BP CFO Brian Gilvary stated that the dividend “is an important signal in terms of con dence for our future cash ows.” Alternatively, the company o ered a dividend reinvestment program to shareholders. In scrip dividends, shareholders have the option to receive dividends in the form of new shares instead of cash. With shareholders opting for scrip dividends, the company’s cash out ow toward dividends reduces, saving the company cash. However, scrip dividends boost the company’s share count, resulting in dilution. Therefore, with the cancellation of the scrip dividend, BP seems certain that it will generate enough cash ow to pay dividends. This generation looks possible given its expected growth in earnings. In 2020, Wall Street analysts expect BP’s earnings to rise by 11%. Most analysts expect oil prices to recover in 2020, resulting in higher upstream realizations and earnings. This recovery could support oil companies’ overall pro ts in the year. Better earnings could result in higher cash ow for BP. BP prioritizes debt and buybacks BP has signi cant debt on its balance sheet. The company estimated its gearing ratio, a non-GAAP measure, was 31.7% on September 30. The company aims to reduce its gearing ratio below 30% by using divestment proceeds. In the rst nine months of 2019, BP’s divestment proceeds were $1.4 billion. The company expected to divest over $10 billion in assets in 2019 and 2020. Therefore, if the company can deleverage its balance sheet with divestment proceeds this year, it might consider raising shareholder returns through buybacks or dividends. Furthermore, BP aims to o set the dilution caused by the scrip dividend since Q3 2017 through buybacks. The company raised its buybacks signi cantly in October. The company bought back $340 million in stock in last year’s rst nine months, and $500 million in October. Will BP’s leadership changes impact its dividend policy? The company is about to go through a leadership change. CEO Bob Dudley is set to retire on March 31, 2020, after almost 40 years with the company. BP upstream CEO Bernard Looney will succeed Dudley. https://marketrealist.com/2020/01/will-bp-boost-its-dividends-in-2020/ 1/2 1/15/2020 Will BP Boost Its Dividends in 2020? - Market Realist When asked about the company’s dividend outlook during the company’s Q3 webcast, Gilvary made it clear that leadership changes would have no e ect on it. He replied, “we may well look at it at 4Q and it will be based on the outlook of where we are vis-a-vis, proceeds, what the trajectory looks like in terms of future cash ows. It is not a function of Bernard having a di erent philosophy to Bob around dividend. That still stays the same in terms of progressive dividend and where the company sits.” Overall This year, BP’s cash proceeds from divestments will play an essential role in determining its dividend growth decisions. With better proceeds, the company will be able to reduce its gearing ratio. Plus, better oil prices could result in higher earnings and operating cash ow for the company, support its buyback program. BP could consider increasing its dividend payment this year if its debt and buyback goals are met. To learn more about BP stock, read Is Wall Street Warming Up to BP Stock? TAGS BP stock Bernard looney bp stock price About bob dudley BP buybacks BP divestment BP dividend BP dividend yield BP scrip dividend brian gilvary Contact Us Cookie Policy Privacy Policy Terms of Service Sponsorships Copyright © 2020 Market Realist. All rights reserved. https://marketrealist.com/2020/01/will-bp-boost-its-dividends-in-2020/ 2/2