BP dividend increase is double expectations

Shares in the oil major are outperforming following second-quarter results that included great news for income seekers. Our City writer has all the details.

A major BP (LSE:BP.) dividend surprise today meant the biggest downside miss of Big Oil’s shrinking earnings season failed to leave its mark on the company’s blue-chip shares.

BP revealed that shareholders will get a second-quarter dividend of 7.27 cents a share on 22 September, up 10% on the 6.61 cents (5.31p) that landed in accounts on 23 June.

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The scale of the award easily beat the 5% increase forecast in the City and was accompanied by the disclosure of plans for a further share buyback worth $1.5 billion.

BP’s latest return of cash helped shares to continue their recent improvement with a rally of 8.45p to 491.45p, whereas rival Shell (LSE:SHEL) spent much of the session in negative territory. UBS has a “buy” recommendation and price target of 600p on BP.

The dividend boost came even though BP’s clean net income figure for the April to June quarter of $2.6 billion (£2 billion) was 26% short of the $3.5 billion predicted and down 70% on the previous year’s record. The figure also compared with $5 billion in the first quarter.

The extent of the decline outpaced the likes of Shell, Exxon Mobil Corp (NYSE:XOM) and TotalEnergies (EURONEXT:TTE) earlier in the reporting season as the industry adjusted to a Brent crude average price of $78 a barrel in the quarter compared with $114 the same period the year before.

However, the first month of the new quarter has told a different story after Brent crude made its monthly gain since January 2022 with a rise of 14%. Supply cuts by major producers Saudi Arabia and Russia have driven the price higher, alongside an improved demand outlook.

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In addition to lower energy prices, chief executive Bernard Looney said weaker refining margins and higher levels of maintenance activity were to blame for BP’s much weaker result.

However, he described the three months as “another quarter of performing while transforming”, adding that BP’s underlying performance was resilient with good cash delivery.

Looney added that the dividend growth and share buyback showed confidence in BP’s performance and the outlook for future cash flows.

The company has already announced or completed $4.5 billion of share buybacks this year, part of a commitment to return 60% of 2023 surplus cash flow.

At $60 a barrel, the company’s guidance is that it should be able to deliver share buybacks of around $4 billion a year with capacity for an annual increase in the dividend of 4%.

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Operationally, BP now expects underlying upstream production to be higher compared with 2022 and for it to deliver four major project start-ups during 2023. Developments in the transformation towards becoming an integrated energy company include the rights to develop two North Sea offshore wind projects in Germany.

Last week, Shell’s second-quarter profits of $5.1 billion (£3.9 billion) fell by 56% on last year’s record level and by 9% more than the City had expected.

The result cast a cloud over the company’s ongoing push to increase shareholder distributions to 30-40% of cash flow from operations through the cycle, up from 20-30%. This will include the 18 September payment of a 15% higher second quarter dividend of  $0.331 (0.26p),