ii view: BP raises the dividend payment

A transition to low-carbon energy and an estimated dividend yield of around 5%. Buy, sell or hold?

Second-quarter results to 30 June

• Profit attributable to shareholders of $3.12 billion (£2.25 billion), up from loss of $16.84 in Q2 2020
• Underlying replacement cost profit of $2.79 billion (£2.01 billion), up from a loss of $6.68 billion
• Net debt down 20% to $32.7 billion (£28.5 billion)
• Dividend payment up 4% to 5.46 US cents per share
• Starting a share buyback programme of $1.4 billion 

Chief executive Bernard Looney said: “We are a year into executing BP's strategy to become an integrated energy company and are making good progress - delivering another quarter of strong performance while investing for the future in a disciplined way.”

ii round-up:

A recovery in the oil price from pandemic-induced lows underpinned a return to profit for BP (LSE:BP.), with the oil major now confident enough in the outlook to increase both its dividend and share buyback programme. 

Second-quarter profit of $2.79 billion (£2.01 billion) compared to a loss of $6.68 billion this time last year underpinned a 4% increase in the dividend to 5.46 US cents per share from the previous quarter's 5.25 cents per share. A share buyback programme of $1.4 billion ($1 billion) is also being launched over the next quarter, up from a previous $0.5 billion scheme. 

BP shares rose by more than 3% in UK trading, leaving them up by just over 15% from pandemic-induced market lows back in March 2020. Shares for rival Royal Dutch Shell (LSE:RDSB) are up by just over a third during that time. Shares for oilfield services company Petrofac (LSE:PFC) are down by around 40%. 

BP in July 2020, and given significant pandemic uncertainty, halved its quarterly dividend to 5.25 cents per share. At an average oil price of $60 per barrel, it now hopes to increase the dividend payment by around 4% per annum up to 2025, along with executing a share buyback programme of around $1 billion per quarter.

Net debt fell by a fifth to $32.7 billion (£23.5 billion) compared to the second quarter of 2020, helped by rising cashflow given the higher oil price and last year’s halving of the dividend.  

Eight oil and gas major projects had been delivered over the last year, with BP on track to achieve its goal of adding 900,000 barrels of oil equivalent per day of new production by the end of 2021.  

ii view:

BP is now pursuing a new strategy to become an integrated energy company. Over the next 10 years, it wants to increase its annual low-carbon investment tenfold to around $5 billion a year. No exploration in new countries will be undertaken with a targeted 40% reduction in hydrocarbon production being made by 2030 through active portfolio management.  

Emissions from its own operations are to be cut by around a third. More than 70,000 electric vehicle charging points are being targeted – up from 11,000 today. And it hopes to reduce the carbon intensity of its products by more than 15%. BP plans to be a very different kind of energy company by 2030. 

For investors, scientific and governmental concern for global warming leaves both BP and the wider industry looking to transform. Investments in low-carbon energies are now required as management looks to reposition its portfolio, while at the same time still offering its historical attraction of shareholder returns in the form of dividends and share buybacks. 

Today’s commit to abandon a fixed dividend in favour of a rising annual payout is welcomed. It comes against a backdrop of a doubling in its pipeline of renewables over the last year to 21 gigawatts, offshore wind operations have been acquired, and its vehicle charging point numbers continue to rise. For now, and with transition progress being made and the shares now sitting on a prospective dividend yield of around 5%, optimism for the longer term is likely to grow. 

Positives: 

• Outlined a greener future strategy
• Attractive dividend payment (not guaranteed)

Negatives:

• Competition in greener energy arena intensifying 
• Subject to oil price volatility

The average rating of stock market analysts:

Cautious buy