Dividend in focus as BP investors look to oil giant’s results

Investors will hold their breath at 7am on Tuesday as they wait for an answer to the hottest question of the week – what will Bernard Looney do to BP’s dividend?

The top bosses at the oil giant are bound to have discussed what to do with the payout – fully aware that if they keep it up for the rest of the year BP will be the most generous company in the FTSE 100.

It is an attractive crown to wear for any company but the pressures to slash the dividend will also be weighing heavily on the board.

BP not only kept, but slightly raised, its dividend three months ago when it presented first quarter results, flying in the face of some of its closest rivals.

But facing the Covid crisis, and needing money for his plans to supposedly turn BP into a “net zero” company, boss Mr Looney might want to slash the payout for the first time in a decade.

The results for the second quarter are “going to be ugly” whatever happens, said AJ Bell investment director Russ Mould.

Analysts are expecting underlying replacement cost to hit a 6.8 billion (£5.2 billion) loss in the quarter, from a 2.8 billion dollar (£2.1 billion) profit in the same period last year. This is according to a consensus compiled by BP.

The average price of Brent crude oil hit 29.50 dollars a barrel over the quarter, down from 69 dollars this time last year.

BP slashed the value of its oil and gas reserves by 17.5 billion dollars (£13.3 billion) in June due to the lower oil prices.

Mr Mould said that the sale of BP’s petrochemicals unit to Ineos for 5 billion dollars (£3.8 billion) will unlock some cash that could be funnelled into the dividend.

It will “help a lot,” Mr Mould said, but “we may still be at the stage where an unchanged dividend would be a bigger surprise than a cut”.

“If BP sticks to that for the whole year it would be the single biggest dividend payer in the FTSE 100, at around £6.7 billion,” he added.

But ahead of the results, investors might take some heart from Shell’s report on Thursday.

The Anglo-Dutch company’s results showed a big loss in the second quarter. But when taking out the effects of a massive impairment caused by Covid-19, the company managed to turn a profit where analysts were expecting a loss.

It was an echo of the first quarter when BP made a statutory loss but managed to turn a profit when stripping out the effects of write-downs.

Analysts at the Share Centre said: “As peers have cut back on dividends with the very low oil price environment, many investors are expecting BP, which so far has held out, to follow the rest, especially after the group reduced its long-term forecasts for oil prices and set aside billions for write-off.”