BP Dividend’s, Yielding 5.3%, Comes With a Catch

As BP (BP) plans its new life with a criminal rap sheet, the energy giant is presenting two inducements to stock investors: a rich dividend yield and its stated focus on the long term cash returns. These incentives can be incompatible.

In late October, BP boosted its quarterly dividend to 9 cents, up 12.5% from the 8 cents paid in the previous quarter. That’s still short of the 14-cent rate paid just before its Gulf of Mexico oil spill in April 2010 (BP suspended its dividends for a year after the spill). In its third-quarter earnings conference call, BP said the latest boost came ahead of its internal schedule.

The stock’s current dividend yield (the most recent 12 months of quarterly dividends paid divided by the current share price) is a generous 5.3%, the highest of peer energy conglomerates Exxon Mobil (XOM), Royal Dutch Shell (RDSA) and Chevron (CVX).

BP Dividend Yield Chart

BP Dividend Yield data by YCharts

BP’s dividend payout ratio, at 30% of net income, is also the highest of the four peer companies.

BP Payout Ratio TTM Chart

BP Payout Ratio TTM data by YCharts

BP says its dividend policy relates to its $38 billion in one-time assets sales since the Gulf disaster. Wall Street expects the post-disaster company to constrain growth. BP says it’s refocusing on high-margin oil exploration and production, including production in Russia.

Among the financial statement tests of BP’s resolve to refocus on high-margin projects upstream (exploration and production vs. marketing) since the Gulf disaster are the percentage growth trend in its quarterly capital spending, compared to peer companies, and the year-over-year growth rate in BP’s long-term investments. Neither measure reads especially well for BP stockholders expecting a track record that would support a robust dividend forecast.

BP Capital Expenditures Quarterly Chart

BP Capital Expenditures Quarterly data by YCharts

Since the end of the first quarter 2010, just before the Deepwater Horizon explosion and oil spill disaster, BP’s long-term investments as a share of total assets has slipped to 10.9% from 12.6%.

In short, the jury is out on BP’s refocus on long-term upstream investments as well as its dividend resiliency. Now, it looks like the company is more committed to the dividend carrot.

Bill Barnhart, a contributing editor at YCharts, is a 36-year veteran of business reporting. Most recently he was the financial columnist for the Chicago Tribune, where he offered daily commentary on financial markets. He is a past president of the Society of American Business Editors and Writers.



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